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Author: 



Twyford, Harry Beaumont 



Title: 



Purchasing and storing 



Place: 



New York 



Date: 



[1921] 



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COLUMBIA UNIVERSITY LIBRARIES 
PRESERVATION DIVISION 

BIBLIOGRAPHIC MICROFORM TARGET 



MASTER NEGATIVE # 



ORIGINAL MATERIAL AS FILMED - EXISTING BIBLIOGRAPHIC RECORD 



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251 

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Twyford, Harry Beaumont, 1872- 

Purchasing and storing, by H.B. Twyford 
••• N.Y., Industrial extension institute 
5:Cl921j 

xvli, 435 p. illus. (incl. forms) 
diagrs. 19 cm. (Half-title: Factory 
management course and service. {v^AJj 



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LIBRARY 




School of Business 



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('4 



FACTORY MANAGEMENT 
COURSE AND SERVICE 



A Series of Interlocking Text Books Written for the 
Industrial Extension Institute by Factory Man- 
agers and Consulting Engineers as Part 
of the Factory Management 
Course and Service 




INDUSTRIAL EXTENSION INSTITUTE 

INCORPORATED 

NEW YORK 



ADVISORY COUNCIL 

Nicholas Thiel Ficker, Pres., Charles P. Steinmetz, 

^ -r^ T^ m CMef Consulting Engineer t 

Charles E. Funk, Secy., General Electric Co, 

Chas. a. Brockaway, Treas., 

Alwin von Aitw, 

Gen. Mgr. Boorum-Pease Co, 

Charles C. Goodrich, 

Goodrich-Lockhart Co. 

Willard F. Hine, 

Consulting Appraisal Engi- 
neer, Chief Gas Engr., 
Public Service Comm. 
N. Y. 



Jkrvis R. Harbeck, 

Vice-Pres. American Can CO. 

Benj. a. Franklin, 

Vice-Prea. Strathmore Paper 
Co., Lieut. Col. Ord- 
nance Depi. 

Charles B. Going, 

Formerly Editor, The Engi^ 
neering Mngasine, Con- 
sulting Industrial Engi^ 
neer. 



STAFF. 



C. E. Knoeppel, 

Pres. C. E. Knoeppel & Co., 
Consulting Engineers. 

Meyer Bloomfield, 

Consultant on Personnel. 

George S. Armstrong, 

Consulting Inaustrial Engineer. 

H. B. Twyford, 

Purchasing Agent, Nichols Cop- 
per Co. 

Nicholas Thiel Fickeb, 

Consulting Industrial Engineer. 

DWIGHT T. Farnham, 

Consulting Industrial Engineer. 

WiLiARD L. Case, 

Pres. Willard L. Case & Co., 
Consulting Engineers. 

David Moffat Myers, 

Griggs & Myers, Consulting 
Engineers. 

Joseph W. Roe, 

Prof. Machine Design, Sheffield 
Scientifio School, Yale Univ. 

Albert A. Dowd, 

Consuting Engineer. 

William F. Hunt, 

Consulting Inaustrial Engineer. 

Charles W. McKay, 

Appraisal Engineer, Cooley & 
Marvin. 



Organization and Administba- 
tion. 

Labor and Compensation. 

PiiANNINa AND TiMI^-STUDY. 

pltrchasing and storing. 

Industrial Cost Finding, 
Executive Statisth^al Control 
The Factory Bun -ding. 

The Power Plant. 

The Mechanical Equipment. 

Tools and Patterns. 
Handling Material in Factob- 

lES, 

Valuing Industrial PsopEBTiEa, 



PURCHASING AND STORING 



BY 



H. B. TWYFORD 

Purchasing Department of the Otis ELemitor 

Company 



VOLUME 4 
FACTORY MANAGEMENT COURSE 



INDUSTRIAL EXTENSION INSTITUTE 

INCORPORATED 

NEW YORK 



' 



?:/\ S \3 



Copyright, 1921, by 
INDUSTRIAL p]XTENSION INSTITUTK 

INCOBPOBATED 



di 



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:l5i 



> PREFACE 

The provision of raw materials and supplies for a manu- 
facturing establishment is a never-ending process as long as 
the factory is in active operation. It must commence before 
the machinery is set in motion and the workman exercises his 
art in producing the output. Prior to this the purchasing 
and storing cycle of operations will have been accomplished 
for the particular article on which the workman is engaged. 
Just as surely as a machine or tool must travel at a given 
speed to attain the maximum efficiency, so surely must pur- 
chasing and storing proceed in feeding raw materials and 
supplies to the establishment. Only on such a basis can max- 
imum efficiency be secured. 

There is no natural element which is not undergoing a 
change. Nature is continually at work producing raw mate- 
rials for manipulation by human effort. If human effort 
could parallel this endless activity there would be no reason 
for studying the economic questions raised by the delays in 
transporting, storing, and handling the product which is to 
undergo change in the factory. 

Some of the most important problems in purchasing and 
storing are caused by these delays, or rather by the quiescent 
periods during which the raw material is undergoing no 
change ; for it is during these periods that economic factors 
ar^ adding to the cost, to such an extent, perhaps, as to sweep 
aside considerations regarding the actual price at which mate- 
rial can be bought. 



vi 



PREFACE 



Having a manufacturing establishment ready for operation, 
it is with raw material that real efficiency must begin. It is 
the purchasing and storekeeping departments which must 
logically take the first step to effect savings in production. 
This does not mean that the purchasing agent must spend 
his energy in beating down prices, and the storekeeper spend 
his time in accumulating a large stock. The problems go 
deeper than that. Raw material must be obtained and sup- 
plied to the production department at the lowest price for 
the right material to obtain the maximum output of finished 
parts, and this must be done with a minimum waste of effort, 
and a minimum waste of time while the material is at rest. 

Good buying and storing are fundamental principles of 
manufacturing efficiency. The problems connected with the 
execution of these functions are many, varied, and interest- 
ing. I have attempted in the following pages to outline the 
most approved and tried methods of solving these problems, 
laying the greatest stress, perhaps, on the acquisition of pur- 
chasing knowledge. 

I desire here to express my appreciation of the courtesy 
shown by various manufacturers in allowing me to exhibit 
their purchasing forms and requisitions. 

H. B. TWYFORD. 



TABLE OF CONTENTS. 



CHAPTER I 

PRELIMINARY OUTLINE OF PURCHASING 

PAGE 

Definition 1 

Science of Purchasing 2 

Economics of Purchasing 2 

Methods 3 

The Purchasing Department 4 

Creative Work 6 

Policy 7 

Six Great Divisions 8 

Correlation of the Divisions 11 

CHAPTER II 

THE ARTICLE 

Specifications and Definitions 14 

Material Specifications 15 

Equipment Specincations 17 

Coal Specifications 18 

Standard Commercial Definitions 22 

Examples of Improper Descriptions 24 

Purposes of Definitions 28 

Standardizing Definitions through Purchasing ... 33 

Enforcing Standard Definitions 35 

Intended Use of Articles 38 

Quantity Purchased 41 

vii 



viii TABLE OF CONTENTS 

CHAPTER III 

THE SELLER 

PAGE 

Relations Between Buyer and Seller 43 

Selling Expense and the Buyer 45 

Reducing Selling Costs 47 

Segregating Sellers 48 

Genuine Competition 49 

Losses through Incorrect Definitions ...... 50 

Departmental Losses 51 

The Market 52 

Creating Markets 53 

Over-Systematization 55 

Jobbers 56 

Sources of Supply 57 

Records of Sources ♦ • 58 

Purpose of Records 61 

Recapitulation ^^ 

CHAPTER IV 

THE PRK E 

Price versus Value "4 

Price Knowledge "° 

Daily Quotations *^ 

Price and Demand ^^ 

Trade Cycles and Prices '^^ 

Exports and Prices 74 

Price Authority ''^ 

Manipulated Prices "" 

Competitive Prices 77 

Strategy in Arranging Prices • ^ 

Buying Methods . ^^ 

Examples of Buying Methods ^2 

Resale Prices "4 

Price Based on Performance ^5 



TABLE OF CONTENTS 



Price Gruaranties . 
Price Maintenance 
Other Arrangements 



CHAPTER V 

THE CONTRACT 

Care^ in Making the Agreement 

Verbal Orders •..>... 

Written Contracts 

Preliminary Communications .,..., 
Distinction Between Offer to Sell and Tentative Bid 

Changes in Contracts 

What the Contract Should Include 
Definition of Quality or Grade 

Time of Delivery ^ 

Place of Delivery 

Terms and Time of Payment 

Cash Discounts 

Contracts and Orders 

Contract Forms 

Regular Orders 

Rush Orders ... 

Pick-Up Orders 

Covering ' ' Orders for Recording Purposes .' .' * 

Remedial Contract Forms 



CHAPTER VI 

DELIVERY 
Importance of a Definite Delivery Date 
Co-operation Between Purchasing and Production De- 

partments 

Delivery and Production Costs .' .* 

Buying on Schedule .* ' ' * ' 

Transfer of Ownership . . ] 



PAGE 

86 
87 
88 



90 
91 
91 
92 
92 
93 
94 
95 
96 
96 
98 
100 
103 
104 
107 
109 
111 
113 
113 



117 

118 
119 

120 
121 



M 



a? 



TABLE OF CONTENTS 



FAGE 

. . 122 

Traffic Work .123 

Follow-up Work . .126 

Emergency Orders '•'''''' 12I 
Helps in Getting Deliveries . 



Inspection 

Inspection Before Shipment . • • 

Testing Samples ^ " • * 

Need of Recognized Methods of Testing 
Transportation Problems . . • • 



128 
129 
129 
131 



CHAPTER VII 

INVOICES 
Completion of the Purchasing Cycle .... 

Work to be Done on Invoices 

Standardizing Invoices 

Relation of Invoices to Purchasing .... 

Trade Acceptances ' ' ' 

Arranging Dates for Payment of Invoices . . 
Avoiding Duplicate Payment of Invoices . . . 

Credits 

Meaning of Net Cash 

Freight Charges * 

Invoices Without Previous Price Arrangement . 

The Buyer's Obligation • ' 

Invoices and Cash Discounts 



134 

135 

136 

137 

137 

140 

141 

143 

145 

145 

147 

149 

154 



CHAPTER VIII 

THE PURCHASING AGENT 



Responsibility . • 
Qualifications . 
Breadth and Vision : 
Finance and the Buyer 
Management and Administration 



157 

158 
160 
162 
163 



TABLE OF CONTENTS 



Psychology in Purchasing 
Reducing the Cost of Salesmanship 
Technical Information 
Policy 

Authority .... 

Natural Aptitude 

Wider Field for the Purchasing Agent 



Department 



CHAPTER IX 

THE PURCHASING DEPARTMENT 
Origin and Mission 
Standardizing Supplies . 
Relations with Other Departments 
Departmental Meetings 
Compiling Records . . . '. 
Relations with Sellers 
Cost of Issuing Orders 
Practical Experience for Employees 
Ethical Standards and Policy of the 
Reciprocal Agreements in Purchasing 
Executive Pressure 
Friendship in Business . 
Effects on Whole Department 
Outline of Work 
Organization .... * 
The Purhcasing Agent . 
Assistant Purchasing Agent, or'ch'ief 
Requisition Clerk 
Price Clerk . 
Order Clerk . 
FoUow-Up Clerk 
Traffic Clerk . 
Invoice Clerk 



Clerk 



xt 

PAGE 
164 

165 
166 
167 
168 
169 
171 



173 

174 

175 

176 

177 

178 

180 

181 

182 

183 

184 

185 

187 

189 

190 

191 

193 

194 

194 

194 

195 

195 

195 



\ 



xii TABLE OF CONTENTS 

PAGE 

Information Clerk 196 

General Arrangement of Department 196 

CHAPTKR i. 

THE PURCHASING LIBRARY 

Books ^^^ 

Periodicals 200 

Registers and Agencies '^^1 

Catalogues 202 

Technical Information in Catalogues 204 

Standardization of Catalogues 206 

Procuring Catalogues 208 

Filing Catalogues 209 

Universal Standard Catalogue System 210 

The Universal System and Standardization .... 212 

CHAPTER XI 

THE USE OF CHARTS AND DIAGRAMS IN 

PURCHASING 

Figures and Charts 214 

Value of Charts to the Buyer 216 

Compound Information 220 

Influence of Charts on Buying 223 

Scheduling Requisitions by Charts • • 223 

Augmenting Buyer's Knowledge of Business Conditions 224 

CHAPTER XII 

ROUTINE WORK OF THE PURCHASING 

DEPARTMENT 

Disposition of Incoming Documents .226 

Accumulating and Recording Information .... 227 

The Requisition 233 

''Rush" Requisitions ^^^ 



\ 



TABLE OF CONTENTS 



Xlll 







PAGE 


y • • • . 




. . 236 






. . 237 




' • • 


. . 238 




• • « 


. . 243 




• • fl 


. 244 


CHAPTER XIII 







Fundamentals Necessary 
Additional Information 
Samples of Requisitions 
Routing the Requisition 
Pricing Requisitions . 



ADDITIONAL ROUTINE WORK OF THE 

PURCHASING DEPARTMENT 

Contracts 

Orders 

Acknowledgment of Orders 

Writing Up Orders 

Variations in Routine Work 

Purchase Order Record 

Delivery Problems 

Following up Orders .... 



251 
256 
257 
259 
264 
264 
267 
267 



\ 



CHAPTER XIV 

FINAL ROUTINE WORK OF THE PURCHASING 

DEPARTMENT 

Invoices 

Methods of Recording 

Preliminary Work 

Checking Invoice With Order .....*].'' 
Cheeking Invoice With Material Received . .' .* ,* ^ot 

Checking Prices .'288 

Classifying and Checking Extensions .....*.' 289 

Checking Freight Charges .' .' ! 289 

Final Approval .' .' 291 

Securing Cash Discounts .'.'].* 291 

Securing Credits ! .' .' ' 292 



278 
280 
282 
283 
284 



^i^ TABLE OF CONTENTS 

CHAPTER XV 

PURCHASING PROBLEMS AND THEIR 
SETTLEMENT 

PAGE 

297 
How Problems Arise ^gg 

Patterns and Dies ^99 

Purchasing Agent's Authority ^^^ 

Responsibility of Salesmen 300 

Orders to Agents ^^^ 

Price Lists ^qq 

Refusing to Sell ^^^ 

Quality 3qj^ 

Return of Containers 

Leeway in Manufacturing Quantities ^^^^ 

Solvency of Vendors • • ^^^^^ 

Machine on Trial ^^2 

Trial Period *. ' * *^n9 

Damages to an Article being Demonstrated ' * ' ' 3J3 

Cancellation of Contract ^^^ 

Contracts not Specifying Quantity ^^^ 

Orders without Prices ^^ 

Penalty Clause - * ' ' ' \ ao4 

Accepting a Portion of Goods Offered JJJ 

False Statements in Negotiations ^^^ 

Offers by Telegraph ^^^ 

Carbon Copies 305 

Mistake in Contract ] 

Crating and Packing Charges ]^^^ 

Shipping an Order in Part ' 

Delivery Prior to Contract Time 

Delivery Point not Specified 

Delivery and Conditions beyond Control ^^^ 

Delivered at Destination 

Prompt Shipment 



TABLE OF CONTENTS 



XV 



PAGE 

Transportation Company's Obligation to Deliver 
Promptly gQg 

Transportation Losses 308 

Claim against Transportation Company 309 

Credit for Returned Goods 309 

Freight on Defective Material 309 

Liability of Railroad Company 309 

Receipt for Goods 310 

Inspecting Material 3J0 

Terms Printed on Order Forms 310 

Terms of Payment 311 

Cash Discounts ^^^ 

No Extra Dating ! . . 311 

Cash Discounts and Freight Allowances 311 

Terms on Invoices 311 

Lost Invoices g^o 

Settlement of Debit by Part Payment 312 

Time of Payment 3^2 

Credit Period 312 

Payments 3^3 

Date of Invoices 323 

CHAPTER XVI 

RAW MATERIAL AND SUPPLIES 

A Form of Wealth 314 

Cost of Storage ] .' ! 315 

Factors which Reduce Values 317 

The Great Stores Problem 313 

Profits in Storage 320 

Safe and Sane Storekeeping 321 

To Store or Not to Store 322 

Extremes of the Storage Problem 323 

Psychological Factors in Storage 324 

Standardization of Supplies 325 



'r 



I 



xm 



TABLE OF CONTENTS 



TABLE OF CONTENTS 



• 



Correct Definitions 

Inventory Price and Market Value . . 
Storage Space and Production .... 
Establishing the Maximum and Mimmum 
The Financial and the Stores Departments 



PAGE 

326 
327 

328 
329 
334 



CHAPTER XVII 

RECEIVING AND STORING RAW 

Equipment and Manual Operations 
Planning and Locating the Storeroom 
Manual and Clerical Work 
The Counting Problem 
Counting Methods . 
Weighing and Estimating 
Even Balance Scale 
Proportional Scales 

Counting Machines 

Weighing Methods 

Trucking Material 

Conveyors . . • - 

Sectional Steel Bins and Shelving 

The Closed Type . 

Open Shelving . 

Racks . . • • 

Open Air Storage 

Intensive Storing 



MATERIALS 



336 

337 

337 

338 

342 

343 

344 

346 

347 

350 

352 

358 

362 

364 

366 

368 

372 

373 



CHAiPTER XVIII 

STORES INVENTORIES 

Perpetual versus Periodic Inventories 376 

The Perpetual Inventory ^^^ 

The Physical Inventory ^^^ 

Ideal Inventorying 



xv%% 



PAGE 



391 



Posting Values on Stores Inventory sgg 

Summary . 

CHAPTER XIX 

RECEIVING, INSPECTING, AND STORING 

Receiving Material at the Factory 

Records of Goods Received ....]]'' 

Value of Inspection 

Inspecting Methods 

Receiving Material into Stores ...].'].* 

Finished Material 

Storing Material 

Identifying and Locating Material ..!.*!' 
Material Returned to Stores 
Scrap 

Stationery Stores . . 



CHAPTER XX 

DISTRIBUTION OF MATERIAL FROM STORES 

Delivery Problems 

Form of Requisitions .... 

Shortages 

Deferred Deliveries . 

" • • • # 

Issuing Stores in Sets or Groups 
Shop Orders and Stores Requisitions 
Supplies from Stores .... 

Stores Records 

Stores Requisitions on the Purchasing Agent 



394 
396 
398 
399 
402 
402 
403 
404 
405 
406 
407 



410 
411 
412 
415 
417 
418 
420 
421 
424 




PURCHASING AND STORING 



CHAPTER I 
PEELIMINAEY OUTLINE OF PUKCHASING 

Definition.— Purchasing is one of the commonest of 
business activities. It means the acquisition of some 
kind of property and the giving of an accepted price 
or consideration for that property. The terms pur- 
chasing and bujdng will be considered and used as 
convertible and synonymous, although there is a dis- 
position by some to regard purchasing as implying a 
transaction of more dignity and importance. 
_ Every transaction between buyer and seller involv- 
ing the transfer of property is a contract, and these 
contracts may take many forms. The simplest form 
of purchase is one whereby the negotiations are en- 
tirely verbal and are conducted simultaneouslv with 
the transfer of the article and the consideration. 
Other forms necessitate the issuing of orders specify- 
ing the material, price, and date of delivery; while 
more complicated forms are made the subject of 
lengthy written agreements defining minutelv in tech- 
nical terms the nature of the material, methods of 
payment, and many other factors. In such cases 
Pliysieal possession of the property may not pass to 
tiie purchaser until a considerable period after the 
agreement is made. 



2 PURCHASING AND STORING 

Science of Purchasing.— Purchasing is just as much 
a science as any of the other activities in the great 
complex structure called business. The success or 
failure of a commercial undertaking may be the direct 
result of good or bad buying. The terms good and 
bad are not used here in a speculative sense. It is 
not intended to infer that good buying implies sim- 
ply that one has bought at the lowest market price 
or that bad buving means that the highest price has 
been paid. Poor buying means rather that the pur- 
chasing has been done promiscuously, loosely, and 
without foresight and accuracy. Whereas good buy- 
ing is scientific, and can be checked in many of its 
phases with the certainty of a mathematical problem. 
For the power of purchasing to be at its maximum 
there must be exact knowledge, which is science; 
knowledge of materials, which implies some knowl- 
edge of manufacturing processes; knowledge of mar- 
kets and prices; knowledge of sources of supply; 
knowledge of certain trade customs and usages, and 
also knowledge of the many ramifications of business 
transactions into which the exercise of purchasing 
carries the buyer. Fortunately, much of this can be 
formulated, tabulated, and recorded in such shape as 
to be available for instant use. 

Economics of Purchasing.— From the ine<'ption to 
the consummation of the transactions between buyer 
and seller many important economic problems are in- 
volved; and the proper handling of these and the ad- 
ministration of the business features connected with 
them are vital factors in the operation of any com- 
mercial undertaking. 



PRELIMINARY OUTLINE 3 

^ Undoubtedly, regulated and right buying is a study 
m economics. If one glances back over the field of 
endeavor connected with production and manufactur- 
ing and observes its tendencies during the past few 
decades, it will be noticed that intensive economical 
operation is applied more closely as time goes on, un- 
til a condition exists with many concerns where they 
save their profits instead of making them, or rather 
they make their profits by savings. It does not ap- 
pear that there will be any lessening of this tendency, 
ihis country, rich in natural resources, with a nation 
ot born salesmen and advertisers, has heretofore 
solved the problem of enlarging its profits by making 
more sales. Conservation of natural resources, com- 
petition, shorter hours for workmen with increased 
pay, and longer week-ends for employers, have forced 
a realization that an increase of advertising and sell- 
ing expense will not continue to increase the business 
m proper proportion to this increase of expense. 
Hence the necessity for reducing costs. Right buying 
strikes at the very root of the problem, as its eco 
nomic value has a vital bearing on the cost of produc- 

Methods.-It is essential, of course, to create stand- 
aidized methods of purchasing. These methods have 
as their object the simplification and assurance of ac- 
curacy of the results to be accomplished. The sub- 
jugation into mechanical habits of the various pro- 
cesses involved is of the highest possible value. To 
be a slave to these habits, however, might ultimately 
react against the object sought. Varying circum- 
stances and conditions will sometimes force one to a 



4 PURCHASING AND STORING 

contemplation of a change in policy ---f ^^^^^ 
deviation in methods, and this change could not oe 
SproXd with an open mind if the habxts had fast- 
ened themselves too closely. phanae 
Any change in methods, however does ^ot chan^^ 
the fundamental principles of purchasing, ^^^f^^^ 
clear and well-lefined. These P""^^?^, ^^^l^'^^;. 
orio-in in past experiences and rules laid do^n by ac 
Tpfed authorities. To question these doctrines i to 
question their authority. But a mmd tramed in con 
structive thinking would not be ^o^t^"* ^f/^^^^X^^^ 
present standards of purchasing to ^^^^'I'^J^l^^ 
ence indefinitely without attempts at ^e «rmcnt^ 
These attempts will be along the lines of system and 
iieSods which must always be flexible enough in 
E nature to be permitted to adjust themse -^^^^^ 
varying situations without in any way d' ^r^* t^^S 
Irom tie fundamental principles for which they are 

'""Thf^urchasing Department.-The instrument 
through which the buying is done in indastnal es- 
tablishments is the purchasing department; ami the 
evolution and growth of this unit in the industrial 
organization has been continuous and constantly gam- 
ing in importance. The necessity for centra .zmg, 
systematizing, and controlling purchases le. to the al- 
location of part or the whole of the time of one man, 
or of several men, to do the work as conditions de- 
mand. The organization of establishments along the 
lines of departmental formation further ^suited m 
the segregation of these activities, and thereby the 
purchasing department came into existence. 



PRELIMINARY OUTLINE 5 

It is essential that the work of the department be 
efficiently and expeditiously carried through, for the 
demands on it grow naturally from the requirements 
ot the business and do not originate with the depart- 
ment itself. The material needs, except actual cash, 
of every department or section of an establishment 
should be procured and furnished to them by the pur- 
chasing department. For this reason it probably 
comes into more direct contact and at more frequent 
intervals with the other departments than any other 
division of an organization. 

Not only in inter-department relations is the pur- 
chasing department particularly active, but in its 
commercial dealings it comes in contact with out- 
side concerns to a greater extent than anv other de- 
partment, except perhaps the sales department-and 
mad?°^ establishments even this exception cannot be 

In any walk of life, when our material necessities 
are not promptly and satisfactorily furnished we are 
apt to criticize those whom we regard as responsible 
for furnishing them or to whom we look as the source 
through which we procure them. The conditions re- 
ferred to in the preceding paragraphs naturally place 
the purchasing department in a position of vulner- 

consL^.rir'^^'f '"*' ^"^ '"*^'^^"- 0" *»»'« ^<"^o™t 
considerable diplomacy and tact are essential features 

in purchasing work; and, to confound the criticizers 
fficiency must be the watchword. "We don't know,"' 
Should never be the answer to questions regarding 
dehvery, to requests for prices, or to queries why in 
voices have not been approved. 



6 



PURCHASING AND STORING 



Creative Work. — From what has already been said 
and from the conditions which are usually supposed 
to surround purchasing it might i)e assumed that its 
function is largely negative. This supposition is 
mainly caused by the fact that the developments 
which originate the demand for purchasing are in- 
itiated through other departments. 

Every business activity, however, must progress to 
some extent by creative work within its own spheres 
of influence. Opportunities for this are greater with 
some activities than with otheit*. The mission of 
purchasing would not be fulfilled if it did not join 
in this; it would be stagnant, and progress in the art 
of buying would be at a standstill. 

It has been customary to leave questions affecting 
the suggestion and utilization of new goods for old 
purposes or old goods for new purposes to the sales . 
department. This has been natural, because the vo- 
cation of a salesman should familiarize him with the 
market for the products of his factory. But there is 
the other side of this matter to be considered, and 
ideal purchasing will mean that it shares with selling 
in the creation and development referred to. This is 
possible because men engaged in buying come into 
touch with markets which the selling force probably 
never see or hear of. The creative instinct in men 
engaged in purchasing could not fail to be aroused 
by new devices, new material, or articles which they 
might find applicable to the manufactures and prod- 
ucts of their own concern. In this way, selling and 
purchasing will jointly share in the creative work and 
progressive development. 



PRELIMINARY OUTLINE 7 

For the purchasing agent this would be constructive 
activity of the highest order, and would mean that 
he would be instrumental in improving and bringing 
forward goods, not only for his own concern, but for 
many others. If this seems idealistic to any one he 
has only to look back over the field of endeavor in 
any industry or profession and review what has been 
accomplished and the progress made, and ask himself 
if this progress has any finality. If it has none, then 
there is no finality to progressive developments in 
purchasing. And it is exactly this which will ulti- 
mately prove for purchasing its measure of fitness and 
determine its relation to, and place in, the world of 
business. 

Policy.— The selling department of an organization 
will make strenuous efforts to establish a reputation, 
not only for the product it sells, but for its selling 
policy. This reputation will be assiduously and jeal- 
ously guarded; and the policy, strictly maintained on 
the standards adopted, will be considered one of its 
greatest assets. It is equally essential for a purchas- 
mg department to establish for itself a policy based 
on recognized standards of business morality and 
ethics. 

The value of this will be appreciated in the treat- 
ment accorded to the purchasing department in the 
multifarious dealings and debatable questions which 
otten come up between it and the many concerns with 
whom it has negotiations and transactions. 

The characteristics displayed by a purchasing de- 
partment will determine its standing in the business 
community. It is not just a matter of business mor- 



I 
it 



r. 



8 



PURCHASING AND STORmG 



PRELIMINARY OUTLINE 



als, but of knowledge of business methods and usages. 
Ignorance of these, intolerance, lack of courtesy, and 
high-handedness will do more harm to efficient pur- 
chasing than plain crass ignorance regarding the ma- 
terial being bought. Vendors are quick to sense these 
things, and their attitude and actions will be largely 
based on them. 

The acquisition of raw material is the initial step 
incurred in the cost of manufacturing anything. 
Equipment and tools of the necessary character nmst 
be procured before production work can proceed. 
Supplies also must be accumulated for use in the 
operation of the plant. The deduction to l)e drawn 
from this is that starting right means buying right. 

Six Great Divisions.— The activities of purchasing 
for an industrial establishment can be classed under 
six headings. These are the six main divisions, each 
of which can be subdivided into manv minor activi- 
ties. A diagrammatic survey of the principal on(»s is 
given in Figure 1. Eeference to this will gri^atly fa- 
cilitate a comprehensive grasp of the probh^m as a 
whole and some of its minor features and d(?tails. 

Amplification of these divisions is given in the fol- 
lowing brief description: 

T. The Article. This naturally comes first, because unless 
there was something to be bought there would l)e no buy- 
ing to be done. 

a. Authentication of the request to purchase. 

h. Knowledge that it is the article best suited for the 

intended purpose. 
c. An accurate definition which will completely pre- 
clude the possibility of confusion with any other 
article. 




Figure 1.— Diagram of the six great divisions of purchas- 
ing WORK, WITH some OF THE SUBDIVISIONS 

d, A correct specification or description of quality. 

e. Knowledge of the quantity to be purchased. 

A Knowledge of the principal characteristics and the 
processes through which the article passed prior 
to arriving at the condition in which it is to be 
bought. 

9' The date on which delivery is required. 



10 



PURCHASING AND STORING 



PRELIMINARY OUTLINE 



11 



2. The Seller. The second stage is to form connections with 

vendors. 

a. Locating the best sources from which the particular 
article can be obtained. 

h. Elimination of economic losses by avoiding wrong 
sources of supply. 

c. Investigation of reliability of seller and methods of 

doing business. 

d. Securing assurance of ability to deliver at required 

date. 

e. Ascertaining location of shipping point and consid- 

ering its relation to delivery point with special 
reference to transportation facilities. 

3. The Price. Establishing the consideration with the seller. 

a. Price knowledge. 

h. Securing competitive quotations. 

c. Knowledge of how to obtain the best price. 

d. Consideration of price in its relation to quality and 

service. 

e. Knowledge of available quantities and existing de- 

mands. 

4. The Contract. Issuing the order or making the contract, 

and agreeing and arranging with the seller the various 
clauses and stipulations. 

a. Embodying in the contract the features outlined in 
above divisions, 1, 2, and 3, as to quantity, quality, 
and price. 

h. Arranging f . o. b. point. 

c. Agreeing as to payment of freight or delivery 

charges. 

d. Arranging terms and method of payment. 

e. Securing best cash discount. 

/. Reviewing legal aspects of contract. 

5. The Delivery. Securing physical possession of the prop- 

erty. 

a. Institution of a follow-up system. 



6. Keeping the seller up to the terms of contract. 

c. Inspecting material in course of manufacture or as 

shipped. 

d. Recording shipments or deliveries made. 

e. Keeping track of shipments in hands of transporta- 

tion companies. 

/. Following up and tracing shipments. 
g. Final receipt of goods at destination. 

6. The Consideration. In-so-far as the purchasing depart- 
ment is concerned this means approving the invoice and 
seeing that it is in proper shape for payment. 

a. Checking with contract for quantity. 

h. Approving price. 

c. Seeing that terms and cash discounts are correctly 

stated in the invoice. 

d. Checking extensions and calculations on the invoice. 

e. Securing certification of receipt of goods. 
/. Properly classifying the charge. 

g. Finally approving for payment. 

The knowledge element and mechanical aids essen- 
tial to a systematic study and understanding of the 
six great factors in purchasing will be dealt with 
fully in proper sequence in later chapters. 

It is necessary for any student of this function of 
business to get a comprehensive grasp of the funda- 
mentals outlined. It will then be much easier to as- 
simulate the minor problems in connection with them 
as they arise for discussion. 

Corelation of the Divisions.— Purchasing can only 
be conducted at the highest percentage of efficiency 
when each of the fundamentals receives proper at- 
tention. A chain is as strong as its weakest link, and 
this axiom can be applied with unusual force to the 






12 



PURCHASING AND STORING 



PRELIMINARY OUTLINE 



13 



links in purchasing. If material is incorrectly or In- 
adequately specified or defined, the price obtained 
might be useless, or at least subject, to revision. If 
the order is not accurately worded, the wrong ma- 
terial may be delivered. If the material is correctly 
specified, the lowest price obtained, and the order is- 
sued to the firm best suited to supply it, still all these 
advantages might be nullified if delivery were not 
made as required. Lastly, assuming that all phases 
of the transaction have been taken care of in an ade- 
quate manner down to the receipt of the invoice and 
this is allowed to go through for payment not in 
accordance with the agreed price' or terms, all the (eco- 
nomic benefits secured by the good work done up to 
this point might be lost. This emphasizes the inter- 
dependence of each section of the work; and no one 
part of it can be overlooked, relegated to the back- 
ground, or treated as negligible. 

Simply placing orders is but a small part of the 
work and cannot rank as purchasing. What it is de- 
sired to emphasize is that there is a well-defined be- 
ginning and a logical conclusion to purchasing, and 
all the intermediate activities between those points 
must be carried through on a basis of equal efficiency 
to insure the successful operation of this department 
of business. 

The purchasing agent is responsible up to the time 
the material arrives. Unless it is delivered to the 
plant within a given time determined by the produc- 
tion department, the whole scheme of economical shop 
operation is jeopardized. Not only this, but it might 
entail delays in filling contracts entered into by the 



( 



sales department, involving the contingencies of the 
loss of customers' good will and the possibility of 
being mulcted for penalties on account of non-deliv- 
ery. 

There is a triangle of expenditures that go to make 
up the cost of any manufactured product; this tri- 
angle is composed of material — labor — overhead 
charges. The last named is frequently determined by 
conditions and location. Trading and bargaining 
with labor is strictly limited. Neither of the two 
mentioned can be bought when the market is low 
and stored for future use. The other leg of the tri- 
angle — material — is most susceptible to control 
through good judgment, foresight, and selective abil- 
ity. For these reasons the importance of purchasing 
is being increasingly recognized. 



THE ARTICLE 



15 



i 



CHAPTER II 
THE ARTICLE 

Specifications and Definitions.— In making the di- 
visions of purchasing, as shown in the previous chap- 
ter, the premier place was given to the *' article," or 
the material to be purchased. The reason for this is 
obvious, since it is apparent that unless on(i knows 
what is to be bought, purchasing could not proceed. 
By placing it first, however, it is not intended to give 
it undue importance over any other phase of the 
work. To specify means to be explicit; to be definite; 
to describe accurately. This subject of correct speci- 
fications is of great importance, and, in many re- 
spects, it may be said to be the most important thing 
in purchasing. 

Appropriate to this subject is the following quota- 
tion from the Report of The Bureau of Supplies of 
New York City: 

Nothing should be left to the imagination in the writing of 
specifications. If the man desiring an article purchased or a 
piece of work done knows what he wants, let him describe it in 
straight, clean-cut, unmistakable language. This takes more 
time, but it is worth it. Adjectives and adverbs are particu- 
larly objectionable. To say that work must be done ** prop- 
erly,'' or ** suitably,*' or in a ** workmanlike manner" does 
not really mean anything, because what one man will consider 
** proper" or ** suitable" another man holds to be quite the 

14 



contrary. Such expressions cause great uncertainty, they de- 
velop confusion, misunderstandings, hard feelings, and de- 
lay; and they contain such opportunities for unfairness and 
graft that they should not be tolerated. The clause that work 
must be done or supplies delivered ' ' to the satisfaction of the 
engineer or inspector" causes every prudent contractor to bid 
high in self defense. 

Broadly speaking, from a purchasing standpoint 
all material can be divided into two classes for 
specification purposes. One class covers material 
which it is necessary to describe in detailed technical 
terms, or which has to pass inspection other than that 
usually given to incoming material, or which is sub- 
ject to special tests. The other class covers material 
for which there are well recognized standard com- 
mercial definitions. 

Material Specifications.— The first class referred 
to usually comprises material of a certain grade, 
quality, or texture pre-determined by the technical 
staff as most suitable for the product into which it 
enters. Probably exhaustive and expensive experi- 
ments have resulted in the selection of this material, 
and it is no part of the duties of the purchasing staff 
to question the specifications. It is their province, 
however, to buy it, when, and as required, in the 

quantities requisitioned and get delivery at the stated 
time. 

To enable this to be done there must be in the files 
of the purchasing department complete detailed speci- 
fications. It is not sufficient for these specifications 
to be held by the engineering or production depart- 
ment and sent to the purchasing department with the 
requisition for material. Emergencies frequently re- 






16 



PURCHASING AND STORING 



quire prompt action in purchasing, and to be depend- 
ent on some other department for any information 
requisite to making the purchase means delay. 

The technical staff, having prepared the specifica- 
tions, should have them properly numbered and 
should retain the master copies, furnishing an ample 
supply to the other departments interested. The 
specifications can be printed, if sufficient quantities 
warrant it, or they can be typewritten or blue printed. 
The number required for purchasing purposes will 
depend entirely ou how often the material is bought, 
how many firms are asked to bid on it, and on the 
number of orders issued. When an order is sent to a 
vendor for material described in a separate specifica- 
tion, a copy of the specification should accompany the 
order, distinctly identifying it with the order by in- 
serting a clause reading, ''This material to b(? in ac- 
cordance with our specification No. , dated 

, which is attached to and forms a part of 

this order." 

Even though the firm receiving the order already 
has a copy of the specifications, which it may have 
retained when quoting, another copy should never- 
theless be sent with the order. 

The best method of filing these specifications is in 
folders similar to correspondence folders, although 
the extension or bellows type may be necessary where 
large numbers are kept. Card indexing them, as 
shown in Figure 2, will make them available for rapid 
reference and of immediate use for mailing. Nota- 
tions should always be kept of all revisions. The 
identification of these revisions by dates or by pre- 



THE ARTICLE 



17 



MATERIAL 



Specification No. 



Folder No. 



Original Date. 



Revision Dates. 



Also refer to 



riG. 2. INDEX CARD FOR SPECIFICATIONS 

In starting a new set of specifications it is possible to have the 

specification and folder number correspond 

fixing a letter to the number is the duty of the 
technical staff, and can be done in much the same 
manner as revisions on tracings. 

It is sometimes necessary to send out blue prints 
or sketches to bidders and with orders. It is not 
suggested that copies of these be kept in the purchas- 
ing department. The technical department, having 
charge of the original drawings and tracings, should 
be able to furnish prints promptly; but it is essential 
that such sketches be identified with the order in a 

manner similar to that suggested for the specifica- 
tions. 

Equipment Specifications.— Establishments of suffi- 
cient magnitude have a competent man or department 
to take entire charge of equipment, and usually this 
man or department is responsible for keeping a com- 
plete record of all machine tools, shop equipment, and 
plant, including engines, boilers, dynamos, inside and 



18 



PURCHASING AND STORING 



outside cranes, etc. It is part of his duties to keep a 
record of these and to be able to furnish to the pur- 
chasing department a complete description of any 
part that it may be necessary to buy. 

It is not conjecture, for experience has proven, to 
state that a great many plants keep no records, or at 
best very incomplete records, of their equipment. In 
such concerns when a breakdown occurs and it be- 
comes necessary to procure parts quickly, the efforts 
to do so involve a great waste of time, much corre- 
spondence, and even at times finally shipping the 
broken parts to the manufacturer when all other at- 
tempts to identify or describe the requirments have 
failed. In factories where such conditions exist the 
purchasing department can render an exceptional ser- 
vice by keeping a record of all equipment purchased. 
It can obtain from the manufacturers a complete 
specification of the machine, with illustrations or 
prints, with the invoice. These can be filed in a 
similar manner to the material specifications. Al- 
though it is scarcely the province of the purchasing 
department to keep a card system of plant and ma- 
chine tool records, yet, in the absence of complete 
records in any department, it can certainly render 
good service if it keeps track of its purchases of these 
items. 

Coal Specifications.— Other specifications which 
could well be handled in the same manner as the 
material specifications are those for coal, oil, and 
paints, if bought in sufficiently large quantities. Coal 
should always be bought on a B. t. u. basis, with some 
limits specified, probably, as to the percentage of 



THE ARTICLE 



19 



(mLr 



D** T 




ll 






HEXAGON FLAT OVAL 

HEAD FILLISTER FILLISTER 

HEAD HEAD 




r m 




BUTTON 
HEAD 



CAP SCREWS 



DEFINITION: 



Cap screws are milled from bars slightly larger than the size of finished head. Heads are true with 
the body. Cap screw* are finished all over. Threaded portion equals three-quarters of the length 
of screw up to and mcludmg 4 ' in length; over 4 ' long threaded portion equals one-half the length. If 
special length of thread is required, same is to be furnished per drawings or specifications. 
Special length of thread to be specified only where standard cannot be used. 

Cap screws vary in length by quarter inch from }' to 5' long inclusive and by half inch from SI' 
up. although seldom used over 5' long. These are standard variations and must be used wherever 
possible. 

For dimensions for heads of cap screws see table "Dimensions of Cap Screw Heads." 15204 Data 

Class. 

Hexagon head cap screws are not to be used when a regular hexagon head tap bolt wUI 
answer the purpose. 

Cap screws when made of machinery steel must have a tensile strength of not less than SO.OOO 
pounds per square inch. 

Cap screws with Flat fillister. Oval fillister, Rat or Button heads are not t* be used in 
sizes of J • or less. If this style head is required in sizes of J* or less, us* Machine Screws. 

For lists of cap screws giving Part Numbers, see: 

11189 Table Class for Flat fillister head 

"90 Flat head 

"91 Oval fillister head 

1192 " " " Button head 
"93 •• f " Hexagon head 

SPECIFICATIONS FOR PURCHASE ORDERS AND SfSCK LEDGER SHEETS. 



Head Cap Screws threaded U. S. S. 



(Hexagon 
Flat fillister 
Oval fillister" 
Flat 
Button J 

Example: 25— |' x 4* hex. head cap screws, threaded U. S. S. 
(If special length of thread is required, specify the length in inches). 



FIG. 3. STANDARD DESCRIPTIONS AND DEFINITIONS 



20 



PURCHASING AND STORING 



THE ARTICLE 



21 






sulphur, volatile matter, and ash. Each car load of 
coal bought on this basis should be sampled and 
analyzed. This can be done for a few cents a ton, 
and the premium may be paid or penalty deduct ed on 
the analytical results. There is now no difficulty in 
getting coal merchants to sell on these conditions. 

In spite of this fact, there are as yet very few in- 
dustrial plants buying coal on the basis of calorific 
value. It is a common practice to buy it on the repu- 
tation of the mine. But would one buy gold, silver, 
or iron ore because it was mined in a certain district? 
Certainly one would have it assayed. The process of 
determining the value of coal is not complicated or 
expensive; hence, considering the enormous consump- 
tion, it is only natural and fair that consumers should 
insist on payment being made on the results of 
analytical tests. 

Moreover, when coal is bought on the assumption 
that it is good because it is from a mine with an 
established reputation, it is difficult to take advantage 
of competition. In fact, there can be no real com- 
petition under such conditions. Each dealer will 
claim his coal is equal or superior to some other; 
but statements of this character have no foundation 
in fact unless proven, and the only proof is the con- 
sumer's analytical test. It is essential to determine 
also the size of coal best suited for the particular 
style of grate bars used in the construction of the 
boilers; or, if mechanical stokers are used, the speed 
of these and their method of operation may influence 
a decision as to size of coal. The customary method 
of defining size of coal as buckwheat, pea, nut, etc., 




i FIG. -4 

COMPRESSION SPRINGS 
(Helical) 



FIG.-9 
TENSION SPRINGS 



UIJ 

FIG. -12/^. 
TORSION SPRINGS 



SPRINGS 



DEFINITION r 



«>.i,!nn"^r^K^' construction those members that are to yieldingly resist force and regain their original 
position or shape at the removal of the force are called springs. 

They are made in an endless variety of forms and are used for many distinct classes of service 

-Com^.^^ ^^^^ ^'''^ TJ ^. ^'"""^^ ^'° ^^'^ ^°"°*^8 «='^^S' ^^'^^ indicate their use or function 
«-ompression, lension and Torsion. 

foUo^ed'on In"drawings^^' ^^ '*'°*" ''*^''^' ^'° "^^ ^^"^"' ""^^^^ ""^ dimensioning that should be 
In dimensioning or specifying springs, the foUowing information must always be given. 

Comprettion Springs (Helical) 

^'*' thr'!n!!!f„^l''1l''',^l^^' °' '"''"^^ '^'^'""^^ depending upon which is the most important If 
» 11 IS to fit over a spmdle or similar part, the mside diameter would be of the most importance 



FIG. 4. STANDARD DESCRIPTIONS AND DEFINITIONS 



22 



PURCHASING AND STORING 



must sooner or later disappear, and dimensional sizes 
will be specified. In European countries this change 
has already taken place, and contracts can be placed 
containing a clause specifying the size of mesh of a 
screen over which the coal shall pass and the size of 
mesh through which it shall fall, with a stipulated 
percentage of coal smaller than the screen it passes 
over to cover breakage in handling. 

Standard Commercial Definitions.— The other class 
of material referred to in the opening of this chapter 
includes material for which there are standard or 
well-recognized trade definitions. In industrial estab- 
lishments the orders issued for such material are 
usually far more numerous than for any other class 
of material, and include orders for small tools and 

nearly all supplies. 

Probably more trouble is experienced by the pur- 
chasing department in dealing with these purchases 
than with any others, and this trouble is caused solely 
by incorrect, improper, inaccurate, or incomplete de- 
scriptions, which may arise from the fact that varying 
methods of defining an article are used by different 
departments and individuals. This leads to con- 
fusion, and compels the purchasing department to 
refer back to the storekeeper or to some other in- 
dividual who drew up the requisition. Delay and ex- 
pense are thereby entailed, besides other annoyances. 

The existence of this condition is demoralizing to 
the internal economic administration of an establish- 
ment. Not only is an inordinate amount of time 
consumed in getting requisitions into shape for price 
getting and ordering, but delays occur in placing 



THE ARTICLE 



23 




fIG.-l 
PUIN TYPE 



DEFINITION: 



FIG.-2 
RIB TYPE 



LOCK WASHERS 



FIG. -3 
POSITIVE TYPE 



The matenal used in the manufacture of spring lock washers is steel 
is wi^ir"'"'"' •'••"'"** '•"•* ""'"'•• ^^^^ *»•' '^^'^'-^ -"d also type, if other than PI«in type 
#5213 Dafi aa"sf "' "' '*"''"** ''"'* ""•^"'' ^' ^^^'^ "Dimensions of SUndard Lock Washers" 

<lJelTi;^''Z L":Jorj;'S;'''' '"" "•""•'' ^^ ^^^" °" ^^'^ '«" ^^^ ^la^s. state bolt 
For list of standard lock washers giving Part Numbers, see f 120S Table Class. 

SPECIFICATIONS FOR PURCHASE ORDERS AND STOCK LEDGER SHEETS. 

Quantity. Bolt Diam.. Name of Part. Type. Size of Steel. 

txample: 500-r lock washers, plain type. 5/32' x 3/32' steel. 

SPECIFICATIONS FOR STOCK OR SHOP LISTS AND REQUISITIONS. 

Quantity. Bolt Diam., Name of Part. Type 

Example: SO-f lock washers, plain type. 

SPECIFICATIONS FOR DRAWINGS AND ENGINEERING PART LISTS. 

^^T 'S'i^^T °^ ^^- ^'''^^- '^y^' P^ Number, 
txample, SO-f lock washers, steel, plain type, Part No. 7374. 



^IG. 5, STANDARD DESCRIPTIONS AND DEFINITIONS 



24 PURCHASING AND STOEING 

orders which, in the case of a **rush" requisition for 
some emergency, might involve serious results. 

The purchasing department cannot afford to let 
these inadequate definitions get past it. If requests 
for quotations or orders carry an ambiguous mean- 
ing and are sent to suppliers and vendors, the trouble 
is sown broadcast among them, and will cause further 
losses and delays. Quotations received from them 
could not be considered absolutely reliable for com- 
parative purposes, and wrong material, even, might 
be shipped simply because the order was worded m 
such a way that it could be read to mean more than 
one grade, or style, or quality. 

Unfortunately, this condition is prevalent to a de- 
gree little imagined by those not engaged in pur- 
chasing work, and its influence on the economics of 
business is far reaching. But this phase of the mat- 
ter will be discussed in another chapter and the 
present discussion limited to suggestions and methods 
for elucidating and solving the problem of correct 

definitions. 

Examples of Improper Descriptions.— A better 
understanding of this problem can be gathered by 
taking a few specific instances which have arisen in 
the writer's personal experience. 

A requisition was received reading: 

12 Gross Hack Saws. 

Of course, hack saws are made in any number of 

sizes for a large variety of purposes. What was 

actually required was twelve gross of fourteen mcli 

hack saws, fourteen teeth to the inch, for power 



THE ARTICLE 



25 




DEFINITION! 



MACHINE KEYS 



^^■•"^^r.:^^^^^ -ne.. eea.. .eaves, 

and sS«r ict''^ ""* ''' ''"°^' ^^""^ ^'^^- ^^ P-^^' ^^y^' Taper Keys. Disk Keys 
shafts' f1J';?<k''S!'' '"^''"' ''^'''' "'^ '"°^'°" ^' ""^^ ™^'°" P^'^ ^0 ^ axis of the 

Of this kind has a head'^U^is'Si S'^crr-Hrd^'Cr Fif ^^ """"'^- '' ' ''' 
Th. .Undard t.per for • machine key equ.U T for each 12' of length. * 

disk tJiS^ '"°'' commonly used key of this class is the "Woodniff." These keys are a half 

J^^bo^\KEoTrs^ayrtit^^^^^^^^ 

b. fot:::, o™:,r;,!^:3„"r'°"" '•""• ""• *'• »•""" '"•^•^'^ °' dimensioning th.t .houW 

widti;''dei;r".nrLith'""''"' •""• •**""'' ""'^* •" «'^*" ■" ^^^^ '•"--« -*««'. ^■■ 

If roiidlTielJ^Tedlh.^H""'':'?"^ "i*'""' •"""* ^^' ""''" <>»»»--- -P-'M. 

otherwise siSiJS.'*''^"' '^' '"^^ *'" *^^^ ^ ^^^'"^ ^^ ^o o^-half the width of the kerunless 

otheSSe^Stl"'^ " ""' manufacture of machine keys is machinery steel and wiU be used unless 
SPECIFICATIONS FOR PURCHASE ORDERS AND STOCK LEDGER SHEETS. 



Quantity. Width X Depth X Length 



Standard taper key 
Standard taper gib head key 
Straight key 
Straight gib head key 



Square end. one end 
rounded, or both ends 
rounded, as may be 
required. 



no. 6. STANDARD DESCRIPTIONS AND DEFINITIONS 









26 



PUKCHASING AND STORING 



machines. No intelligent prices could liave been ob- 
tained or an order issued on the basis of the defini- 
tion given in the requisition. 
Another requisition was for: 

10,000 Bolts and Nuts 34"x3". 

In this case neither the style of the bolt nor of the 
nut is specified. The nuts might be square or hexa- 
gon, hot pressed or cold punched. If bids were asked 
on the description given, the bidders would im- 
mediately ask what was actually required, or would 
send in quotations for varying styles of nuts and the 
prices would be useless for purposes of comparison. 
The correct method of specifying and which should 
have been employed in writing requisitions is as fol- 
lows : 

10,000 %"x3" sq. head Machine Bolts with C. P. R. hex. 

nuts., U. S. S. 

This description would be readily understood by 
any manufacturer of bolts and nuts. Its import is 
unmistakable to any person accustomed to handling 
this material. If one wanted to be technical, the 
specification could be extended as follows: To be 
made of machinery steel having a tensile strength of 
50,000 pounds per square inch; and the nuts could be 
further described as cold punched, chamfered and 
trimmed hexagon rough nuts. But the definition as 
given above is the regular commercial one and is 
ample for all ordinary purposes. 

Another illustration is of a requisition which read: 

1 Bale of Burlap for packing room. 




ROUND 



ROUND COPPER WASHERS 



Bolt 
Part No. Diam. 



85304 
84761 
80182 
86095 
80490 
80007 
80148 
84762 
84764 
80489 
80149 
80150 
1867 
80158 
80147 
85307 
80185 
80151 
80152 
80153 
80154 
80155 



H 



#6 



#8 
#10 



#12 



125' 

.150" 
^' 

A' 

.170' 
.195' 

A' 
A' 

.215 
.228' 
A' 

y 

\' 



B 
^'' 

ir 

V 

I' 
I' 

tt' 
A' 



4'- 



C Remarks 

ih' Standard 

A' Special 

r 

^' Standard 

ii' Special 

it' Sp. for "L" Push Button 

ti Standard 

ih' Special 

A' Standard 

iV' Special 

A* Contact disk, hole C's'k. 

iV Special 

A" " 

A' Standard 

A' Contact Disk 

A' Special 

A' 



** 



*i 



™. 7. A STANDARD METHOD OF INDICATING THE PART NUMBER 

siVdIv ^^Lvl'nVfh'^"''"?" department is able to requisition articles 

bimpiy by givmg the part number. The purchasing department will 

clearly understand what is to be purchased. 27 




28 



PURCHASING AND STORING 



If a purchasing agent asked for prices on such a 
definition he would be requested for information as to 
weight per foot and width. This is one of those in- 
stances where practical experience should determine 
the quality best suited for the product that is packed 
in the shipping room. It is possible that it may be 
found more economical to carry two or more weights 
in stock. In any case the width of the roll and the 
weight per yard should be specified. 

The illustrations given could be continued in- 
definitely, but those given will answer the present 
purpose. It cannot be emphasized too strongly that 
for intelligent purchasing every article and all ma- 
terial must be accurately and adequately described. 
In doing this it is preferable that definitions be brief, 
concise, and tersely worded. Sometimes one or two 
words and figures are sufficient. Nothing is gained 
by adding anything to the shortest definition, pro- 
viding this definition conveys in unmistakal)le lan- 
guage what is actually meant. No article is so simple 
or so common that it should not be properly and 
clearly described or specified. 

Confusion is further aggravated by the varying 
methods of describing the same article. One man 
may give the width first and the length next, while 
another will reverse this order. Again, the addition 
of a single unnecessary word might lead to a com- 
plete misunderstanding, while, on the other hand, the 
omission of one might even mean that the descrip- 
tion could be used to cover two articles. 

Purposes of Definitions.— The subject of standard 
definitions has had the serious consideration of many 



DEFINITION OF PARTS 



BASE— A part used as a foundation, rest or support for another part 
or parts. 
Apply a prefix to the term indicating location. 

Specification should state: Quantity, Name of Part, Material, 
Part Number. 

Example: 6 — contact holder bases, Brass, Part No. 3337. 
1— equalizing hitch base, C. I., Part No. 6634. 



BEAM— A part long in proportion to its thickness, usually in a 
horizontal or nearly horizontal position and supported at its end 
or ends and loaded in some manner; as a load m the center, load 
at either end, or both ends, an equally distributed load, etc. 
This term should be used with discretion and avoided wherever 
possible. 
Apply a prehx to the term indicating function. 

Specification should state: Quantity, Name of Part, Material. 
Pzri Number. 

Example: 1 — momentum compound brake working beam. C. S., 
Part No. 5535. 



BEARING — A part used as a support for and in direct contact with 
a moving part. The moving part is usually a revolving one, as 
a shaft journal, pivot, pin, etc. or it may be a part subject to 
longitudinal motion. 

Bearings for revolving parts should be divided into three classes 
viz. those in which the pressure is perpendicular to the axis of 
the shaft, the pivot or step bearing in which the pressure is 
parallel to the axis of the shaft, and the thrust bearing in which 
the pressure is parallel with the axis of the shaft, but is taken on 
the face of a collar or other form of bearing from the periphery 
of the shaft. 

■ The last two classes will be treated under their proper headings, 
viz, "E»ivot Bearings" and "Thrust Bearings". 
Apply a prefix to the term indicating location. 

Specification should state: Quantity, Name of Part, Material, 

Part Number. 

Example: 1— drum shaft bearing. C. I.. Part No. 3126 

2 — ^inside worm shaft bearings, C. I., Part No. 6231. 



BED— A foundation for a machine. A rigid part of a machine on 
which something is supported and to which the working parts are 
usually secured. 
Avoid the use of this term, uang instead the term "Bed .Plate." 

BED PLATE — A rigid part of a machine on which something is suiv 
ported, and to which the working parts are usually secured, 
bpecification should-h*-^— — '-— .«jjg^le, stating: Quantity 



bevel gears where the) 
plane. The term "*'* 
the term "EJevel (jt* 
to bevel gears whosei 

Specify bevel gearsj 
(^ntity, Name of 
Pitch diameter. Mai 

Example: 1— bevel 
No. 



BLOCK— A term us 

to a part more or 1^ 
or more plane or ap 
be used with dis 
also "Pillow Block.] 
Apply a prefix to tr 

Specification should 
Part Number. 



Example: 



No. 141 
4 — guide sh^ 
1 — thimble 



BLOWOUT— A magneuj 
formed by the separatjf 
ing part of a circuit/ 
function. 

Specification should 
Part Number. 

Example: 1 — "C 
Part 
2~"H 
Part 



BOILER— This term h 
As used by this Com 
strong metallic vessel 



BOLT— A strong pin of 
head at one end and 
a screw thread at the 
are given various nai 
the general shape of t 
Commercial bolts are 
follows: 

and nuts 



FIG. 8. DEFINITION SHEET 

These sheets are extremely valuable throughout any establishment. 

The object is to give clear definitions which may be understood 

by anyone. See also Figure 9. 
2d 



30 



PURCHASING AND STORING 



manufacturers, and earnest efforts have been made tO 
find a satisfactory solution. Various schemes have 
been tried out with varying success. That it is es- 
sential to have some regulated and well ordered 
method of standardizing the descriptions of every 
class of material and of all articles, and also of all 
supplies of every kind and nature used around an 
industrial plant, can not be gainsaid. There have 
been more attempts to standardize material and sup- 
plies than to standardize the use of proper definitions. 
The purchasing department is more directly inter- 
ested in the latter phase. Both phases, unquestion- 
ably, should be dealt with simultaneously, but it is not 
always done. 

The objects to be attained by standardization are: 

1. To indicate commercial material and articles to 

be used in production work and to be adopted 
as standard. 

2. To reduce the variety of material and articles 

necessary to be carried in stock. 

3. To reduce the variety of supplies used and con- 

sumed throughout the establishment. 

4. To secure uniformity in naming and defining all 

material, articles, and supplies. 

The illustrations shown in Figures 3 to 10 indicate 
in what manner the objects mentioned have been at- 
tained. These sheets of definitions can be printed if 
there is a large number of users or can be prepared 
by the technical staff and blue printed if then? is only 
a limited number of users. 



DEFINITION OF FARTS 



KEY— For the definition of this term, also method or specifying, 
see #5022 Data Class. 



KNEE — ^This term will be understood as indicating a bracket which 
connects two parts at an angle, 

The use of this term should be avoided wherever possible, using 
instead the terms bracket, etc. 
Apply a prefix to the term indicating location or function. 

Specification should state: Quantity, Name of Part, Material, 
Part Number. 

Example: 1— brake band knee, W. I., Part No. 17751. 



KNUCKLE JOINT— This term will be understood as indicating 
a hinge joint, in which a projection with an eye on one piece, 
enters a jaw between two corresponding projections with eyes 
on another piece, and is retained by a pin which passes through 
the eyes and forms the pivot. 



LAMINATION — Used as an electrical term it will be understood 
as indicating a thin iron disk or plate used to build up an arma- 
ture, field pole pieces, etc. 

The thin disks or plates may or may not be insulated from one 
another 
Apply a prefix to the term indicating function or location. 

Specification should state: Quantity, Name of Part, Material, 
Part Nvunber. 

Example: 300— #17-26 Motor pole piece laminations. Steel, 
#28 (.0156') U. S. Gauge, Part No. 30001. 



LATCH — A movable piece which holds anything in place by en- 
tering a notch or cavity. 

The use of this term should be avoided wherever possible, using 
instead the terms "Catch." etc. 
Apply a prefix to the term indicating location. 

Specification should state: Quantity. Name of Part, Material, 
Part Number. 

Example: • 1— switch arm latch, C S., Part No. 17756. 



LEVER— A rigid piece which is capable of turning about one pcnnt, 
or axis, and in which are two or more other points where forces 
are applied or dehvered; used for transmitting and modifying 
force and mot" 

■ AnnlY 



LINK— This term 
rod or piece for 
necting rod with 
be used to indica 
The term is also 
escalator, the p: 
also has a rack c 
Apply a prefix to' 



Specification shoul 
Part Number. 

Example: 1- 

1— OF 
1— lir 



LOCKNUT— This 

used in pipe fitting 
where a pipe pas 
or liquid: such as 
is cut on the pipej 
two locknuts are 
on the outside of 
the side of the 
between the lockr 
to make an absolul 
The term "Locknv 
a check nut. 



LOCK WASHER 

part or member 
or under a nut., 
or to prevent a 
For further infj 
specifying, see 
For dimension; 
For list of st 
#1205 Table C 



LOOM BOLT- 

of the body ne 
to fasten wood) 
very similar to 
larger, and the 
Avoid the use of 1^ 

LUG— This term will 
anything is support^ 
is fastened. Any 



FIG. 9. DEFINITION SHEET 
These sheets familiarize the staff with various parts, and are of 
great value to those in the technical departments and of far greater 
value to those without technical training. 

See also Figure 8, 31 




PURCHASING AND STORING 





'trffl 




Li^fJ 



1 



OVAL DOG OR PIVOT CONE 

POINT POINT POINT 



DIMENSIONS OF PIVOT POINT SET SCREWS. 



I* 
I* 

I' 

IV 

2' 



Diam. of Pbint 



A* 

H' 

*• 

»• 

•• 

f 

*' 

r 
I* 
»»• 
If 



Length of Point 



A' 



r 



Spedal don't UK 



Pivot points are flat on the end unless otherwise specifieo, and the kngth of screw is measured from 
extreme point. 

If special shape or aize pivot point is required, it must be shown by drawing or sketch, or 
specified completely, the f<Srmer preferred. 



FIG. 10. TABULATION OF STANDARD DIMENSIONS 

Speaking again from the viewpoint of purchasing, 
there is one objection to these sheets or books of 
standard definitions. Every person authorized to 
make requisitions on the purchasing department is 
supposed to have a copy and adhere rigidly to the 
standards adopted for naming and defining the goods 
requisitioned. But, unfortunately, this is not always 
done. The books are apt to be treated as reference 
books, purely and simply, to be consulted when in 
doubt. Confident in his memory many a man will 
admit no doubt even when not pressed for time, and 



THE ARTICLE 



33 



will write up a requisition incorrectly or inade- 
quately. And when in a hurry, although in doubt, he 
will perhaps not consult his reference book, trusting 
to the purchasing department to rectify any errors 
of omission and commission. 

Therefore, the purchasing department cannot 
escape from the responsibility of correctly and ade- 
quately defining its purchases. It must check up all 
requisitions before any action is taken on them. 

Standardizing Definitions Through Purchasing.— 
In those establishments where no methods have been 
adopted for securing standard definitions it devolves 
upon the purchasing department to do something in 
this direction, and large results can be accomplished 
if the problem is approached in the right manner and 
grappled with in a systematic way. 

Constantly coming in contact with manufacturers 
and vendors, the purchasing staff is in a peculiarly 
favorable position to become conversant with the 
regular recognized standard commercial definitions of 
everything purchased, and it can gradually enforce 
the use of them in so far as the purchasing and store- 
keeping departments are concerned. 

It may be contended that it is not the province of 
the purchasing department to attempt to enforce the 
standardization of materials, but it has been known 
to have accomplished much good in this direction. 

In the enforcement of a standard line of supplies 
it can well have a freer hand. In those cases where 
each department or section of an establishment 
requisitions its own supplies, it is liable to be gov- 
erned by individual preferences and dislikes, causing 



ivnnitffii 



ii 



34 



PURCHASING AND STORING 



THE ARTICLE 



35 






a much greater variety of articles to be purchased 
than is absolutely necessary. Elimination of this 
fault can be brought about by standardization. A 
purchasing agent recently said that he found eighteen 
varieties of cotton waste were being used in an 
establishment when he took charge of the purchas- 
ing; sixteen of these he soon found were unwarranted. 
This condition occurred in a manufacturing plant, not 
in municipal purchasing. As a result a saving in 
cost of forty-five per cent was effected. 

The average buyer is commercially rather than 
technically trained; and it is not to be assumed that 
a man with these qualifications, buying a wide 
variety of articles, can be so technically informed 
that he is able to specify each one of his purchases 
accurately. Nevertheless, he should have some super- 
ficial knowledge of technical and mechanical sul)jects. 
Generally speaking, the man who buys a sp<jcified 
grade of material in large quantities at regular in- 
tervals should not suffer from a lack of knowledge 
concerning the technical characteristics of that ma- 
terial. He will, from observation if not sheer neces- 
sity, acquire all points of information needful to the 
satisfactory and economic purchase of the commodity. 
Similar deductions can be made in connection with 
the purchase of supplies, and perhaps they apply 
with more force because technical considerations are 
not so important nor so intricate. The uniformity of 
the product of an industrial establishment depends 
very largely on uniformity in the quality of raw ma- 
terials. With supplies it is somewhat different. 
Utilitarian considerations have more weight in de- 




Specifications must 2lways read as follows: 
Quantity. Dia., Length Material Article 
Example. 1000 '/?' x 3" Steel Cotter Pins 



Req. No. 



Order No 



Date 



Seller 



Quantity 



Size 



Material 



Price 



Delivery 



FIG. 11. PURCHASE ORDER RECORD 
Such a purchase-order record as that illustrated is valuable for refer- 
ence purposes. From it can be abtained : (a) A complete index of all 
orders under the name of the material ; (b) a list of all vendors from 
whom the material has been purchased; (c) a record of prices paid, 
the fluctuations being easily followed by glancing down the last 
column; (d) a compilation of the total quantity of material pur- 
chased over any period; (e) a standardization of specifications and 
definitions. Whenever possible, a sketch should appear on the record, 
but with such things as sheet mica, sheet fiber, cotton waste, etc., the 
standard method of specifying should be printed across the top of the 
page, e.g, "100 lb. clear North Carolina mica cut IV2 in. x 4 in.— 
Sample for testing purposes must be submitted'before 

order is placed." 

termining the purchase. And since the purchasing 
agent has or comes in contact with or is offered 
almost every known article suitable for any kind of 
purpose, he is in an exceptionally favorable position 
to form an opinion and come to a decision in regard 
to many of them. 

Enforcing Standard Definitions.— Figures 11 and 12 
show what can be done in the purchasing department 
in the way of enforcing standard definitions. When 
any requisition is received in the purchasinig depart- 
ment, the first thing to be done in connection with it 




THE ARTICLE 



37 



is to check it with the standard definition as given in 
the records; and if it is not in accordance with the 
definition, it must be corrected to conform to it. In 
later chapters the requisition will be dealt with more 
fully. At present it is desired only to show its con- 
nection with the standard definitions. 

Whenever possible a sketch should accompany the 
definition. By the visualization of an article every 
time it is ordered it becomes second nature to specify 
correctly. With many articles sketches are unneces- 
sary, and with others impossible; but the standard 
definitions should always be given. This applies to 
every purchase, including supplies, such as brooms, 
oils, waste, packing materials, stationery, carbon 
paper, ink, and so forth. 

Many purchasing agents rely solely on their 
memories to correct improperly worded requisitions, 
long use having accustomed them to the needs of the 
establishment. Where a very limited number of 
articles are purchased it may be feasible to specify 
each item from memory correctly; but it is not good 
practice; it is unscientific, and it frequently leads to 
mistakes. Changes in materials and supplies are con- 
tinually taking place, and the only safe and proper 
way is to make a permanent record of them. 

It is not to be supposed that any purchasing agent 
IS so well informed as to be able to describe correctly 
every article purchased. In some establishments the 
items needing definition would run into thousands; 
but even so the work of accumulating the definitions 
IS not so stupendous as the large number would seem 
to indicate. The best plan is to consult the manufac- 



38 



PURCHASING AND STORING 



THE ARTICLE 



39 



turers and suppliers each time a new material or 
article is ordered, obtaining the correct standard 
commercial method of specifying it and making a 
permanent record of it. By adopting this course the 
whole range of purchases can be covered in a reason- 
able time. It will certainly repay any buyer to put 
a man on this work and, if necessary, let him devote 
his whole time to it until the records are complete. 

Much valuable information can also be obtained 
from catalogs. This subject will be considered later 
in connection with the purchasing agent's library, but 
this source should be used to collect general infor- 
mation regarding any product, the number of sizes in 
>^hich it is made, and the different styles, rath(?r than 
to secure the definition of a particular item. 

Intended Use of Articles.— Many articles have what 
might be called counterparts or prototypes. When in 
the market for any of these, the buyers are offered a 
legion of products which seem to differ but slightly 
the one from the other. Without any knowledge of 
the ultimate use lor which such an article is intended 
it is impossible to be sure in what manner the sub- 
stitutes offered are unsuitable. 

Unfamiliarity with the manufacturing procc^sses of 
the business for which he purchases is one of the 
prevailing weaknesses in the purchasing agent 's pro- 
fession. A buyer should know enough about the pro- 
duction and operating departments of his own factory 
to be able to make a reliable decision as to the utility 
of any substitute that may be offered. It is usually 
through the purchasing department that these alter- 
native articles and materials come to light, and the 



ability to discern what to reject and what to accept 
is a valuable attribute in a buyer. 

Unless a buyer has a good working knowledge of 
the manufacturing methods of his own house and its 
product he is at a great disadvantage in dealing with 
salesmen. The buyer interviews many salesmen. 
Any one of them, for example, may handle only a 
single line or article and in that one field he may be 
an expert. He can designate exactly the advantages 
of his product in the manufacturing processes of the 
concern to which he is trying to sell, and if the buyer 
is not equally well posted on the products of his own 
house, he will not be able to handle the situation with 
judgment and discretion. 

No matter what the nature of the purchase there 
are always questions arising which can only be an- 
swered by a knowledge of the intended use of the 
article, but it is not always possible for a buyer to 
have this close knowledge at first hand. In a very 
small business it may be, but in purchasing for a 
large corporation whose requirements embrace an 
enormous variety of objects, detailed information 
must be put into the purchasing agent's possession. 
And it must be put in such explicit shape that he can 
form his opinions and judgments on many questions 
from a paper standpoint. 

The illustrations given earlier in this chapter of 
standard definitions and stock parts and their use in 
the product of a factory are extremely valuable ad- 

• 

]uncts to a purchasing agent's knowledge. Not only 
do these definitions give him information regarding 
the product of his own factory, but they also give him 



40 PURCHASING AND STORING 

complete data, compiled by those who are in a posi- 
tion to know, and detailed specifications of all the 
articles and materials he purchases. 

Samples.— Many purchasing agents maintain a 
sample file with contents tagged and indexed. This 
may be advisable where the purchasing is done from 
a central point with storerooms and factories scat- 
tered in various places, but there is not much to be 
said in its favor when the purchasing, storekeeping, 
and production work are all located in one group of 

buildings. 

As a general rule buyers for industrial establish- 
ments do not show any great enthusiasm over buying 
from samples. Sometimes samples submitted by sev- 
eral bidders can be examined and put to some simple 
tests. This is of assistance in foiming a decision on 
the relative values of the quotations and, furthermore, 
the sample can be retained and compared with the 
material finally delivered. This is the most reUable 
means of ascertaining whether the material finally 
delivered is exactly in accordance with the sample 
submitted. If repeat orders are expected the sample 
can be filed for reference when subsequent purchases 

are made. 

Buying to sample should be confined to articles in 
which the chemical composition is unimportant or 
which do not have to pass any severe tests. But if 
chemical composition is important the only safe way 
is to specify the required composition in the body of 
the order and also to define any analytical and 
physical tests to which the material will be sul)jected. 

In some instances an article may not be specified 



THE ARTICLE 



41 



or defined by the purchaser, but the onus is thrown 
entirely on the seller to furnish material that will per- 
form certain work or fulfill some specified function. 
This is frequently productive of good results, because 
it starts a lot of sellers working for one buyer for one 
particular purpose, and out of the combination work- 
ing for him the buyer may secure an exceptionally 
good bargain. 

Quantity Purchased. — It is not usually the purchas- 
ing agent's business to designate how much shall be 
bought. Neither is it the storekeeper's, but this sub- 
ject wall be taken up under the discussion of stores 
handling, as it more properly belongs there. 

If a special order is secured by the sales depart- 
ment of the factory the amount of material called for 
by that order is the determining factor. If the ma- 
terial is one which is carried in stock permanently, 
the requirements of the business and length of time 
consumed in getting delivery must be considered. 

The first thing the purchasing agent wants to 
know is what the plant wants; and it is his business 
to secure what is needful to keep the production work 
moving along in its appointed way. The basis of 
scientific buying is to have an exact knowledge of 
these needs. They should be stated so precisely in 
specifications and requisitions that they cannot be 
misunderstood or evaded. 

The skilful buyer should endeavor to move in the 
direction of standardizing his entire line of purchases. 
Of course, all articles are not subject to standardiza- 
tion; but in purchasing for a large corporation there 
IS a big field for it. This is moving in the general 



42 



PURCHASING AND STORING 



direction of a permanent buying basis, eliminating 
much work and argument from the seller's end of the 
game. The alert purchasing agent, however, can* 
not allow himself to settle back comfortably with 
the feeling that standardization has made his future 
path entirely smooth. The sciences that enter into 
manufacturing are moving forward at a rapid rate, 
changing materials and methods, and the purchasing 
agent must continually revise his specifications and 
definitions to keep abreast of manufacturing require- 
ments. 



CHAPTER III 
THE SELLER 

Relations Between Buyer and Seller. — Forming 
proper business connections with the seller is one of 
the most important phases of purchasing work. The 
economic aspects of the subject warrant consideration 
at this time. 

In conducting electric current from generating 
station to the point of consumption certain trans- 
mission losses are bound to occur, and electrical en- 
gineers are constantly at work endeavoring to reduce 
these losses. In the world of business certain '* trans- 
mission losses'' caused by lax and unscientific 
methods of making connections between buyer and 
seller also occur. Strenuous efforts are being made to 
reduce these losses, and in these efforts the pur- 
chasing agent performs an important part. That the 
losses can be contracted and confined within well de- 
fined limits is beyond question; the benefits derived 
will be shared equally by buyer and seller. 

The statement has been made that, in the last 
analysis, all the complex ramifications of business 
can be reduced to two functions — buying and selling. 
The contention being that other activities, such as 
accounting, financing, and advertising, exist as sub- 
flivisions of those two functions. Be this as it may, 

43 



44 



PURCHASING AND STORING 



THE SELLER 



45 



commercial transactions do revolve around these two 
functions, and for economic reasons tliey should be 
brought into the closest possible relationship. 

No one would be willing to admit that we have 
reached a condition where nothing more can be done 
to establish closer connections between buyer and 
seller. It is only necessary to review the vast amount 
of advertising and the strenuous endeavors made in 
all phases of salesmanship and compare them with 
the results obtained, to convince any skeptic on this 
point. A rectification of these conditions cannot be 
expected from the seller. He must go after business 
wherever prospects indicate a probability of obtaining 
it, and he must go after it in whatever manner seems 
likely to secure results. 

The buyer should be as assiduous as the seller. But 
his methods are necessarily different, and he, if his 
purchasing is conducted along scientific lines, can be 
largely instrumental in reducing some of the losses. 

When a purchaser buys any manufactured article 
he is getting in composite form all the materials 
which go to make up that article. The manufacturer 
of electric motors, pumps, typewriters, or loose-leaf 
ledgers had to buy various materials to produci^ these 
articles, and these materials, in turn, were the finished 
product of some antecedent manufacturing process. 

This tracing back process can be continued until 
the original raw material is reached. The function 
of buying is exercised many times during this prog- 
ress, and if in these movements its execution can be 
more economically administered and conducted it has 
a very appreciable effect on the ultimate cost. 



The economic benefits secured by the efficient op- 
eration of a purchasing department are not confined 
to the department itself or to the establishment with 
which it is connected. There is a much broader and 
more general view to be taken, and one which affects 
the whole world of business in its influence on lim- 
iting some of the losses already alluded to. 

Selling Expense and the Buyer. — A buyer should 
have exact information on all points relating to the 
material he purchases. He should know exact quan- 
tities required, when required, and the quality re- 
quired. By accurate research he can then confine his 
inquiries, negotiations, and orders to those concerns 
who are in the best position to supply him. If evi- 
dence were taken from business houses it would al- 
most unanimously show that a very large part of 
their correspondence, telephone service, and sales- 
men's time is employed in investigating incorrect defi- 
nitions and specifications of material. Many times 
they do not handle the material that is asked for, or 
may be only in a second rate or second best position 
to supply it. And it very frequently happens that 
salesmen are sent out merely to clear up moot points, 
traveling long distances on needless errands. 

These expenses must be included ultimately in the 
selling price of the material and articles affected and 
are therefore paid for by some buyer. There is no 
good reason why this condition should exist, because 
a purchasing agent can so gather and tabulate the 
necessary information that should eliminate a very 
large percentage of this wasted effort. It follows 
automatically that if improved buying methods effect 



46 



PURCHASING AND STORING 



THE SELLER 



47 



'i) 



a saving in selling expenses, lower prices should even- 
tuate with some resultant benefit to the purchaser. 

Some proprietary articles and certain materials 
must be bought in which there is little or no compe- 
tition, but outside of these there is a large field for 
the purchasing agent to create the competition he 
wants by the process of selection and elimination out- 
lined. A purchasing agent must get the right kind 
of competition. Many think, because they have a 
large number of concerns who are prepared to quote 
for their requirements, that they have good competi- 
tion. Nothing could be more fallacious. It is the 
purchasing agent himself who should dictate with 
whom he negotiates for prices and with whom he 
places orders. The consummation of every buying 
transaction should be effected with the. least amount 
of expense, not only to the two principals concerned, 
but to all unsuccessful bidders. 

It might be assumed that a purchasing agent is not 
interested in the selling expenses of the houses from 
whom he buys, but enough has been said to show 
that he has a very direct interest in the cost of sell- 
ing. To further exemplify this let any purchasing 
agent review the cost methods of his own establish- 
ment. 

A selling price is arrived at by a succession of steps 
or stages commencing with raw materials, followed 
by labor, oyerhead expense, selling expense, and to 
these, finally, is added a profit. If a purchasing agent 
studies this it will be brought forcibly to his obser- 
vation what an important item selling costs are. With 
this in view he can make some calculations as to re- 



ductions in the prices of the goods manufactured by 
his own establishment that could be effected if the 
selling costs were considerably lowered. And such a 
condition applies to every concern from whom a pur- 
chasing agent buys. If a permanent reduction can 
be effected in his own concern, a similar reduction 
can also be effected in others. 

Reducing^ Selling Costs. — Only a few hints have 
been given as to the manner of reducing selling costs. 
Later on, these will be elaborated and some concrete 
instances given; but at present the following facts 
should be considered. All forms of entertainment ad- 
vance the cost of doing business and raise sales costs. 
Undoubtedly this cannot be entirely eliminated; some 
expenses under this head are necessary, but the buyer 
can materially decrease them. It may be true that 
some salesmen indulge their own desires under the 
cloak of entertaining the buyer, but the buyer should 
not indulge in unnecessary entertainment for he is 
simply raising the price against himself. 

If a salesman is kept waiting an inordinate length 
of time before interviewing a purchasing agent, it 
has a bearing on the number of buyers he can see 
during the day and therefore exerts an influence on 
the selling cost. Every journey a salesman makes to 
see a buyer, every call made while negotiations are 
pending, every time he submits new prints, every 
time he re-figures certain quotations, in fact every 
move he makes costs money and thereby increases 
the cost of selling. 

The purchasing agent can do more than any one 
else to eliminate these waste movements and, further- 



i8 



PURCHASING AND STORING 



THE SELLER 



49 



more, can encourage salesmen to work in this direc- 
tion by furnishing accurate and specific information 
on all points when going into the market. 

Segregating Sellers. — Except in a few isolat(»d in- 
stances of manufactured products and in a few cases 
of exceptional commodities every manufacturer and 
dealer can be classified under one of two headings. 
He is either as well equipped to furnish a buyer's ac- 
tual requirements as some other firm or he is not. It 
then behooves the purchaser to ask quotations only 
from those firms who are well qualified to furnish the 
required goods. 

By way of illustration take the manufacturers of 
bolts and nuts. Some of them confine their output 
to certain types; others specialize on small sizes; 
again, some make only finished bolts and milled nuts. 
In ordinary practice the purchasing agent, in obtain- 
ing quotations, approaches these manufacturers in a 
hit-or-miss or haphazard manner. Probably he has a 
list of manufacturers or obtains the names from a 
classified directory, hoping by getting in touch witli 
all to hit the one who can give him the best price and 
delivery. He may or may not succeed. Even if he 
does, his methods are unscientific, and he has in- 
creased the selling costs of many of them unneces- 
sarily. 

Illustrations analagous to the one given could be 
continued indefinitely. Dealers in lumber, manufac- 
turers of chemicals, of stampings, of forgings, are 
all susceptible to a more rigid classification than is 
given in any business directory or index. The author 
has seen requests for quotations sent to many lists 



of manufacturers and suppliers, and frequently not 
more than twenty or twenty-five per cent of the re- 
plies received could be used for competitive purposes. 
With a properly authenticated list, however, every 
inquiry sent out should bring a bona fide quotation. 

Genuine Competition. — Every quotation received 
from sellers not in the best position to supply a pur- 
chaser's requirements is not only an economic loss but 
furthermore is not genuine competition. One might 
get a dozen such quotations and still not have ob- 
tained good competitive prices. Genuine and re- 
liable competition can only be secured from a prop- 
erly selected list of bidders. Prices obtained in a 
promiscuous manner cannot be used for comparative 
purposes with any assurance that the best results 
have been secured. 

Sound competition can only exist between those 
parties who are best equipped to supply the particu- 
lar grade or quality needed. This is the right kind 
of competition, and anything short of this entails eco- 
nomic losses in the operations of all those asked to 
quote for the business. To illustrate this again, con- 
sider a list of spring manufacturers. It will be found 
on close analysis that some of them make only heavy 
helical springs, others make springs of light .w^ire, 
while others, still, are specialists in elliptical springs 
or springs of formed, stamped, flat-strip steel. Lum- 
ber dealers can also be subdivided into those who spe- 
cialize in hardwoods, high-grade lumber for cabinet 
work, or rough lumber for mill construction or pack- 
ing purposes. 

These distinctions and refinements cannot be disre- 



^^ 



50 



PURCHASING AND STORING 



THE SELLER 



51 



garded, and it is incumbent on the buyer to confine 
his activities in canvassing the market to those con- 
cerns whom he has previously investigated along the 
lines suggested. By this procedure only can dei)end- 
able quotations and genuine competition be obtained. 

In considering the economic situation in its relation 
to competition it must be borne in mind that if, by 
keen competition or clever maneuvering, a buyer 
closes a deal which entails a loss to the seller it is not 
a loss to the world of business. What is lost by one 
party is gained by the other; the general commercial 
economic system has suffered no loss, as it has in 
cases where unnecessary movements have been caused 
by unscientific buying methods. 

Losses Through Incorrect Definitions.— In the pre- 
ceding chapter stress was laid on the importance of 
correctly specifying and defining every article and all 
material. No matter how trivial or infinitesimal a 
purchase may seem it is necessary to describe it so 
carefully that no doubt whatever can possibly exist 
as to size, quality, and quantity. The reasons for this 
are the same as those already given for properly se- 
lecting the right sources of supply; for otherwise 
similar losses would occur. If negotiations were 
opened with only those concerns })est equipped to 
supply the material, and then it was incorrectly or in- 
adequately described, the situation would be just as 
bad as though the material were correctly defined 
and an uncertified list of vendors were approached. 

It is quite as important to define an article of small 
intrinsic value correctly as it is the more valuable 
ones. Probably more so, because the proportionate 



loss is greater. Instances have occurred where orders 
were sent out for very small articles whose value did 
not exceed fifty cents, but because of improper de- 
scription a whole chain of inquiries was required to 
clear up ambiguous meanings, involving an expense 
far in excess of the value of the articles. 

Departmental Losses. — So far, in the discussion of 
the economics of purchasing, we have confined our 
attention to the effects on business in general and to 
the effects through reaction on the buyer. But the 
economical operation of the purchasing department it- 
self is also affected. Unfortunately, in too many pur- 
chasing departments the employees must spend con- 
siderable time in straightening out tangles arising 
from just the causes previously referred to. It seems 
to be looked upon as a part of the daily routine work 
which cannot be remedied. But this should not be the 
case, for this unpleasant feature can be greatly im- 
proved, if not entirely eliminated. 

Proceeding along the lines laid down means the 
cutting out of all the unnecessary work of answering 
inquiries regarding incomplete, inadequate, or incor- 
rect specifications; and when the business is placed 
with selected firms the work of following up the order 
and getting delivery is greatly facilitated, for they 
will have been chosen for their promptness in ship- 
ping and filling orders and their general service and 
attention. This means that shipping notices and bills 
of lading will be rendered promptly, enabling early 
advices to be given to the consignee department; 
and, what is perhaps most important, invoices will 
^ome in quickly and regularly. This latter feature 



52 



PURCHASING AND STORING 



THE SELLER 



53 



is one that is essential if all invoices are to be put 
through their regular routine in time for the cash 
discount to be available. 

Where a very limited number of articles is pur- 
chased the purchasing department should work at an 
efficiency of one hundred per cent in getting competi- 
tive bids. This percentage cannot always be main- 
tained where large numbers of articles are bought, 
nor where new kinds of material are continually being 
required, but something very near it can be secured. 
The Market.— There is a logical market for any- 
thing and everything which it is necessary to pur- 
chase. It is incumbent on the purchaser, therefore, 
to confine his activities to those houses who can sup- 
ply exactly what he wants. Experienced purchasing 
agents with proper records have no difficulty in this 
respect, but inexperienced ones can secure equal effi- 
ciency by following closely the instructions given later 
in this chapter. 

The sources of supply may sometimes be very large, 
and the reverse may be the case with certain ma- 
terials. But even when one has a large number of 
vendors to depend upon for a specific article it will 
alw^ays be found that some are not in the logical list. 

As a measure of safety and preparedness for even- 
tualities a buyer should develop emergency markets 
from which he can draw whenever the occasion de- 
mands. It is the purchasing agent who is responsible* 
for maintaining a sufficiency of raw material for pro- 
duction work. Business acumen and foresight call for 
him to make provision for this in his scheme of 
buying. 



Many causes may force the buyer out of the logical 
field in order to keep his factory running. Strikes, 
breakdowns, stoppage of transportation facilities, 
freight embargoes, and other causes contribute to this. 
Sometimes certain artificial conditions may exist by 
reason of which the logical source of supply does not 
offer the greatest attraction to the buyer. A depres- 
sion in trade in another territory may make an open- 
ing for a good buy, or a combination working to the 
detriment of the consumer may be in effect among 
the regular sources of supply. 

During an unprecedented demand for screw ma- 
chine products because of war conditions, the waiter 
had an experience which will serve as an example for 
the necessity for emergency markets. A small milled 
article had been bought in large quantities for a num- 
ber of years, always within a radius of two hundred 
miles of the buyer's factory. Owing to the regular 
sources of supply having a surfeit of other orders, it 
was impossible to place with them further orders for 
this particular article except at an advance of nearly 
forty per cent and on six months' delivery. Some 
difficulty was experienced in locating another source, 
but finally a supply was found which, although it was 
some twelve hundred miles from the buyer's factory, 
furnished exceptionally good delivery and at a price 
only eighteen per cent over the old price. 

Creating Markets.— Constructive buying is not a 
fancy phrase, it is a reality. Lack of sound competi- 
tion, poor sources of supply, and sources located at 
inconvenient or distant points have brought forcibly 
to the attention of many buyers the advisability, if 



; I 1 






54 



PURCHASING AND STORING 



THE SELLER 



55 



not the necessity, of creating and developing new 
markets. 

It has already been emphasized that potential com 
petition is essential to good buying. When competi 
tion is weak or indifferent, it is time for the purchas- 
ing agent to get active and find a solution. Some 
times one or two big concerns may so overshadow the 
market as practically to eliminate genuine competi- 
tion. 

These and other reasons make it necessary for the 
purchasing agent to use vision and imagination, and 
by careful selection of likely sources to build them uj) 
by a process of nurturing and fostering until he has 
created a situation that has all th(^ elements he needs 
for the efficient execution of his policies. 

This development work, when applied to some of 
the smaller and weaker concerns, may call for strategy 
and tactics of a high order, for the buyer's diplomatic 
moves made to accomplish his purposes must not be 
disclosed either to a strong concern from whom he is 
buying, or to the weak one which he is trying to 
make strong in some particular line. 

Important results have been achieved along these 
lines. One of the principal reasons for this is that the 
small man is having his selling done by the purcliaser. 
His selling expenses, then, are negligible, and gener- 
ally his overhead charges will be nmch lower than hi;^ 
big competitor. Quite often when the financial re- 
sources of the small concern are limited the buyer can 
arrange to purchase his raw material for him at lower 
prices than his cramped financial condition will per- 
mit. Such methods as these not only enable the pur- 



chasing agent to buy at exceptionally low prices but 
give him the assurance of a reliable source of supply. 
When a salesman discovers a ** prospect" he assidu- 
ously follows it up, nurses it, and endeavors to con- 
vert it into a customer. It is equally essential for 
the buyer to discover '* prospects," follow them up, 
cultivate their potentialities, and make of them im- 
portant economic factors in his general scheme of 
business. 

Other advantages crop out in developing the pos- 
sibilities of smaller concerns. For example, it is 
profitable at times to bring to the understanding of 
the bigger concerns that they do not enjoy the mon- 
opoly they figured was theirs. In such cases, where 
the visible supply of an article may seem to be al- 
most wholly in their hands, the psychological effect 
may stimulate them into actions which can only have 
beneficial results for the buyers. 

Over-systemization.— Some large corporations have 
carried departmental formation to such extremes that 
su|)sidiary departments or divisions are formed in 
oach original department, and even in these subsidiary 
<livisions the • work may be divided into several 
branches. Whether the multiplicity of segregations 
IS responsible or whether it is because of lack of co- 
ordination or co-operation the writer does not know, 
but many experiences in buying from such corpora- 
tions has amply proved that better service can be 
obtained elsewhere. 

Generally it is fairly easy to get a quotation on new 
standard material from these over-systematized or- 
ganizations, although there are exceptions. The 






56 



PURCHASING AND STORING 



THE SELLER 



57 



scheme of organization seems to have provided for this 
work to be done promptly. But if it is necessary to in- 
quire about a shipment of some order, particularly if 
it should be a spare part for a machine, or to get a (luo- 
tation on such an article, or information on anything 
but a big order, the inquiry is often times referred to 
several persons before a satisfactory answer is ob- 
tained. 

The writer has no intention of ** blacklisting" large 
corporations. He is simply recording that such con- 
ditions exist with many of them, and to a much larger 
extent than with smaller concerns. It is by no means 
unusual, for example, to be able to telephone to a 
moderate-sized firm and get information promptly and 
accurately; while all too frequently in dealing with a 
large company one is switched by the telephone oper- 
ator to several persons, and then is finally asked to 
put the request in writing and send it as a formal in- 
quiry. This inquiry, then, will pro})ably pass through 
the hands of half a dozen persons before an answer is 
made, each handling averaging a delay of a day. >^t- 
urally, it does not take many such experiene(\s to 
cause a purchasing agent to eliminate such corpora- 
tions from his list of sources of supply. 

Jobbers. — Every buyer prefers to place his order 
with the actual producer and not through the inter- 
mediary jobber. Not infrequently, however, it will 
be found that better service can be obtained from a 
jobber than from a manufacturer. This is a ques- 
tion of considerable magnitude and can be discussed 
from many angles. Price, of course, is the predomi- 
nant argument and will be discussed more fully else- 



where. The buyer should include some jobbers in 
his available sources of supply and should, by all 
means, retain their good will. Such jobbers as he 
may keep on his list will depend largely on what he 
is buying, for he will be compelled to purchase some 
articles through these sources. The manufacturer's 
selling policy of protection usually enforces this. 

Again many manufacturers will sell direct to the 
consumer in picayune quantities. A manufacturer 
of machine screws, for instance, will take orders for 
one gross and ship direct to the user. But is the 
buyer gaining in service? The screws no doubt 
could be purchased from a local jobber and be deliv- 
ered at the buyer's storeroom at a price little above 
the manufacturer's; while in sending the order direct 
to the manufacturer, located probably in a distant 
city, shipment may not be made at once and corre- 
spondence regarding it may arise; transportation 
charges also may have to be paid by the purchaser. 
The inconveniences connected with buying small 
quantities at some distance from the destination of 
the goods are all the purchaser's and not the seller's. 

Manufacturers cannot carry stocks in every city. 
The jobbers do this for them, and hence they have a 
practical and legitimate place in the business world. 
Buyers are absolutely dependent on them for **pick 
up" orders, for example, and many times for ''rush" 
orders. 

Sources of Supply.— Another reason why the pur- 
chasing agent must keep a complete compendium of 
firms and localities where he can buy any material 
likely to be required by the plant, is that he may be 



iY 



58 



PURCHASING AND STORING 



called into fonsiiltation at any moment on negotia- 
tions the sales department may have in hand tor 
some big contract, and information will be required 
of him promptly and definitely as to where, when, 
and at what price the raw material can be secured. 
These particulars are essential, for the sales depart- 
ment needs them to determine on what basis to make 
its proposal to the customer. 

Both the sales and production de})artments are apt 
to overlook the possibilities of securing certain 
classes of raw material promptly; and without duly 
considering this phase they will frequently make 
concessions to secure an order which ultimately may 
prove very costly. Steel and copper, for instance, 
may have to be purchased from warehouse instead 
of from mill to meet delivery dates; and the addi- 
tional cost thus incurred should have been included 
in the sales estimate. 

Selection of sources of supply is not done by in- 
tuition. It is a scientific process of accumulating 
data and recording them in orderly and proper shape 
so that the best source can be chosen at a momiMit's 
notice. Delivery conditions from the selected source 
must be known, and variations in the time required 
to obtain raw material must be noted. Advices cov- 
ering this point should be sent as occasion demands 
to the manufacturing department to govern them in 
making their requisitions. 

Records of Sources. — Indiscriminate shopping and 
marketing is inexcusable. All the reasons previ- 
ously given and many others as well apply against 
a vague haphazard method of procedure in placing 





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60 



PURCHASING AND STORING 



THE SELLER 



61 



I ■' 



orders without first investigating tlie recipient. All 
phases of the transaction must be foreseen during 
this investigation up to final termination of the con- 
tract by payment of the invoice. 

A manner in which this information can be col- 
lected, accumulated, and tabulated is shown by Fig- 
ure 13. The necessary data can be obtained through 
a great many avenues, some of which are enumerated 
in the following list: 

1. Through experience in dealing with vendors and 
salesmen. Naturally one does not take all state- 
ments made by salesmen at their face value, but 
much useful information can be obtained. 

2. By inquiries among firms in lines which are some- 
what similar. This is probably the most depend- 
able method and can be used with confidence. If, 
for instance, one has a good reliable sourc(» of 
supply for cold drawn steel, through this cone<irn 
he could no doubt easily obtain information re- 
garding manufacturers or dealers in tempered 
steel. 

Through friendship with business men in all lines. 
From catalogues. This source will be dealt with 
fully in a later chapter. 

From observations made when visiting ware- 
houses and factories. A buyer should always 
make a practice of making such visits at conven- 
ient intervals. Considerable knowledge of ma- 
terials can be acquired at these times, and valu- 
able information regarding manufacturing meth- 
ods. Also the arrangement of stock should be 



3. 
4. 



5. 



noted and calculations made as to whether it is 
adequate. Visits are often requested by sellers as 
a means of assuring the purchaser of their capa- 
bility to take care of prospective business; or, a 
purchaser may insist on inspection of facilities 
before opening up business relations. 

6. By scrutinizing the advertisements in technical 
journals, periodicals, or trade papers. Many good 
names can be culled from these and made the 
subject of closer investigation. 

7. Keference to standard registers, such as Hend- 
rick's or Thomas's, is constantly necessary, but it 
is often essential to sift the names there listed 
and further subdivide and classify them for one's 
particular purpose, as explained earlier in this 
chapter. 

8. From classified directories such as the New York 
Telephone Company's **Eed Book." 

9. By membership in a local purchasing agents' as- 
sociation. 

10. By membership in or inquiries made through the 
local Board of Trade or Chamber of Commerce. 

Purpose of Records.— The information obtained 
through the above-named channels is desired for the 
following purposes: 

1. To ascertain the position of the concern to insure 
satisfactory competition. 

2. To discover whether any combination or collusion 
exists with other firms to maintain prices that 
would prevent genuine competitive bids. 







62 



PURCHASING AND STORING 



THE SELLER 



63 



3. To find out the location of the factory. One 
might buy from a jobber in Chicago, but actually 
the article might be manufactured in Connecticut. 
Such geographical considerations are often im- 
portant. 

4. To know the capacity of the factory. It is essen- 
tial to know that the manufactory is able to take 
care of the business one gives them. 

5. To obtain the reputation of the concern under in- 
vestigation for making prompt shipments. 

6. To learn the transportation facilities between 
point of shipment and destination. It is never 
wise to be dependent on one transportation line, 
or to take too big a risk of freight embargoes. 

7. To make sure that the stock is adequate and well 
kept in the case of dealing with a warehouse, or, 
if with a factory, that there is an ample supply 
of raw material? It is a comm<m experience to 
place orders witli some factory and not to be able 
to get shipment because the factory cannot ob- 
tain its raw material. 

8. To see that the vendor can supply the quality de- 
manded. 

9. To learn whether the vendor keeps his promises. 
If a firm's reputation is bad in this regard, the 
buyer will have endless trouble. 

10. To ascertain the financial standing of the vendor. 
His position must be strong enough to insure that 
his business will move along its appointed way 
without let or hinderanee. Buyers must have this 
protection. 



Recapitulation.— Briefly recapitulated in tabloid 
form the advantage and benefits gained by the 
buyer by a close adherence to a properly selected list 
of sources of supply are: 

1. Savings to business in general through reduction 
in selling costs; 

2. Increased efficiency of purchasing department; 

3. Protection against high prices; 

4. Assurance of sound, genuine competition; 
5 Confidence in getting a square deal; 

6. Provision against irregular and delayed deliv- 
eries ; 

7. Relieving and facilitating follow-up work; 

8. Prompt receipt of invoices; 

9. Acceleration in the work of checking and approv- 
ing invoices; 

10. Guarantee of all cash discounts. 

Unlike specifications and stipulations regarding 
quantities to be bought, which are not always within 
the jurisdiction of the purchasing agent, the question 
as to where to buy is entirely and absolutely under 
liis command and control. His job is to find the 
market; and he can make large use of his supreme 
authority in this particular matter with JDenefit to his 
concern. His hands should be free, and his negotia- 
tions unrestricted by any questions of reciprocity, 
favoritism, or prejudice. 



i 



THE PRICE 



65 



I 



CHAPTER IV 
THE PRICE 

Price Versus Value. — Price in its common mean- 
ing and narrower sense is the amount of money fixed 
as the consideration of the transfer of property; but 
in a broader sense it means what one gives or re- 
ceives in exchange for what is received or given. 
This view is one which can be studied to advantage 
bv all buvers. 

A vendor may sell a machine or certain material 
for a stipulated consideration represented in dollars 
and cents; but he may give such excellent service 
and even technical advice and assistance that, al- 
though the actual cash paid may be higher than sim- 
ilar property could have been purchased for from 
another, the value received may be greater. The 
reverse of this occurs when the buyer and seller 
mutually arrange a monetary consideration; the buyer 
pays it as the agreed price, but he may have to spend 
time and money following up delivery and getting 
possession of his property. In that case the real 
price paid is something more than the actual casb 
which is transferred. 

John Ruskin said: 

All works of quality must bear a prior in proportion to the 

64 



skill, time, expense and risk attending their invention and 
manufaeture. Those things called dear are, when justly esti- 
mated, the cheapest. They are attended with much less profit 
to the artist than those which everybody calls cheap. Beauti- 
ful forms and compositions are not made by chance, nor can 
they ever, in any material, be made at small expense. A com- 
position for cheapness and not for excellence of workmanship 
is the most frequent and certain cause of the rapid decay and 
entire destruction of arts and manufactures. 

Price, quality, and service must be considered to- 
gether. Too often price is made the determining 
factor in the transaction. Right buying demands 
something more than a comparison and scrutiny of 
prices, for in industrial management price is some- 
times a secondary consideration, although it should 
never be ignored. 

Let us consider for the moment the other two fac- 
tors. In Chapter II it was explained that practically 
all material used in a modern factory for production 
work must meet certain conditions as to quality. As 
far as the purchasing department is concerned no 
deviation can be made in the quality of the material 
so specified. Engineering tests and exhaustive ex- 
periments have predetermined the exact nature, 
style, grade, and, probably, size of the material, and 
it is the province of the purchasing agent to buy that 
material at the lowest price from the best available 
sources. Variations in quality or substitutions can- 
not be permitted without the consent of the author- 
ity in charge of production. If a purchasing agent 
were able to abrogate this feature the work of the 
technical staff and the expense incurred in making 
the tests and experiments would be completely nulli- 
fied. 




66 



PURCHASING AND STORING 



THE PRICE 



67 



1 



I 



Somewhat different conditions surround the buy- 
ing of supplies, and usually the buyer has more free- 
dom and some voice in selecting quality. This is 
because the supplies used in a manufacturing estab- 
lishment are not a component part of the finished 
product. The reputation of a concern depends largely 
on the uniform and sustained quality of the goods 
turned out, and the raw material purchased for these 
goods must not vary. But with supplies the purchas- 
ing department can frequently be of great service in 
bringing into use certain supplies, small tools, and 
similar articles which might never come under the 
notice of the shop. 

In making purchases, therefore, of raw material 
whose quality has been predetermined and is not 
under his control the buyer is confined largely to 
specializing on price and service. Regarding the lat- 
ter, general information should alr(»ady be on record, 
as explained in the preceding chapter; but special 
conditions in connection with a })urchase may need 
special investigation, and the purchasing agent must 
know he can get delivery at the times required by 
the production department. Tliese considerations 
must be borne in mind in forming any opinion on 
prices quoted. With several bidders on equal terms 
as regards service and delivery, price only remains 
as the deciding factor and the buyer must then con- 
centrate on this. 

When quality is left in the purchasing agent's 
hands for determination, his responsibility is much 
greater. The exact measure of utilitv is the vahn' 
of an article. Highest quality does not necessarily 



mean greatest value to the user. An article or some 
material which is graded higher than the actual con- 
ditions demand, might not be as serviceable for the 
purpose as one of a lower grade. 

Empowered to decide questions of quality the pur- 
chasing agent must weigh the merits of hosts of 
substitutes which are constantly being brought to his 
attention. The tendency with many buyers is to re- 
fuse to consider substitutions which would involve 
paying a higher price, but this is a narrow view 
to take. To deal intelligently with the question of 
quality, comparing the intrinsic values of substitutes 
offered, and finally deciding which is the best price, 
presupposes that the purchasing agent has an inti- 
mate knowledge of the uses of the material in his own 
plant and a wide knowledge of the many variations 
of materials he is buying. Purchasing for an estab- 
lishment with a limited product may be done on 
these lines, but beyond a certain point it is an im- 
possibility, and the buyer has mainly to devote his 
activities to price, service, and delivery. 

Discussion of price and quality can really lead only 
to one result. They are fundamentals that must be 
given equal consideration in every legitimate pur- 
chasing transaction if well balanced results are de- 
sired. If in any important transaction a buyer first 
ascertains the minimum of quality that will be ac- 
ceptable to the user and the maximum of price that 
will be tolerated, he can find, if lines of price and 
quality were charted, the point at which the two in- 
tersect. 

Summarizing the discussion of price, quality, and 



68 



PURCHASING AND STORING 



service, it resolves itself into this: If two or inore 
sellers quote on identical articles, all naming tlie 
same delivery and the same terms, and all being 
equally reputable, the low price should get the busi- 
ness. If prices, reputations, and terms were all the 
same, but one could meet delivery requirements bet- 
ter than the others, he would get the business. All 
other things being equal, the one having a better 
reputation than the others would naturally be the 
recipient of the order. 

A real danger exists if price is made the prime 
consideration. If this should be insisted upon by 
all buyers, the result would be that manufacturer.^ 
would have to cheapen their product to meet the 
stipulation. The cumulative effect of this would be 
retrogression and decay. 

Whatever buyers may do, however, manufacturers 
are fortunately not inclined to follow this direction. 
Without exception one may find manufacturers main- 
taining a fixed standard of quality or making stren- 
uous efforts to improve their product. 

Price Knowledg'e. — The method of asking for (|uo- 
tations for purposes of comparison is universally 
adopted by purchasing agents. It is sound in theory 
and uniformly, successful in securing prices for a par- 
ticular material or article. It is assumed, of course, 
that only concerns are approached which are in the 
best position to supply such material. 

But when these prices are obtained the buyer's 
price knowledge has not been broadened. They do 
not tell him why prices are high or why they aro 
low. They do not increase his knoweldge of the re- 





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70 



PURCHASING AND STORING 



THE PRICE 



71 



i 



lation between price and demand; the relation be- 
tween trade cycles and prices; how advancing prices 
may be anticipated, and how declines in prices may 
be forestalled. All these things constitute price 

knowledge. 

Price knowledge starts by becoming well versed 
both in prices of daily purchases and of general cur- 
rent prices. Such knowledge is a valuable acquisi- 
tion to any person engaged in buying or selling, be- 
cause it gives one a mental picture of relative val- 
ues which cannot be obtained in any other way. Con- 
tinued application and practice in reviewing prices 
will yield a vast fund of information. An ability to 
know values can be more easily developed than 
might seem possible. Almost countless numbers of 
articles are bought by some purchasing departments, 
and, of course, it is not to be supposed that their 
prices can all be retained mentally; but the depart- 
ment is a storehouse of information, and should keep 
records, not only of actual purchases, but of all ma- 
terial in which the establishment may be interested. 
Daily Quotations. — For prices of other artick^s of 
interest, but which may not pass through a purchas- 
ing department, the quotations in the daily and trad(' 
papers may be utilized, as nearly all raw materials 
and many standard finished and semi-finished articles 
are listed. This source of information is a fruitful 
one, and a perusal or even cursory examination of 
these quotations will add greatly to price knowledge. 
A knowledge of daily quotations and prices of 
daily purchases gives a sure indication of the gen- 
eral trend of prices. Everybody wants to know, or 



to be able to divine or anticipate, changes in prices. 
A tendency towards an advance or decline can be 
predicted with some assurance by a close student 
of current prices. This is not solely because of a 
knowledge of a price or prices, but because any 
change in a price excites curiosity as to the cause 
of the change; seeking for the cause opens up a 
whole field of information on which an opinion can 
be based as to future price movement. 

In a large company, or in a concern where the 
purchasing agent needs no authorization before mak- 
ing stock purchases, such information is exceedingly 
valuable, for material mav then be obtained at favor- 
able periods. Even in those cases where the pur- 
chasing agent has no authority to buy except as in- 
structed, he can, nevertheless, make suggestions to 
the proper authorities with a view to taking advan- 
tage of an existing favorable market. The buyer 
who can forecast an era of high or low prices is a 
factor of great economic importance in any estab- 
lishment. 

Price and Demand. — As already stated, fluctua- 
tions in prices force one to look for the cause. They 
are usually found to be the results of fluctuations in 
demand. In other words, the shrewd buyer must 
look beyond mere price, which is not more than a 
heginning of knowledge of the market. Knowledge 
cf demand gives an idea as to probable rise and fall. 
It is the most powerful element affecting prices. 
Knowledge of demand, therefore, is essential, and 
can be acquired and assimilated in much the same 
manner as knowledge of current prices. 



72 



PURCHASING AND STORING 



THE PRICE 



73 



With knowledge of demand must be coii])led 
knowledge of supply. Demand for a commodity 
might be exceptionally large, but if the supply keeps 
pace with the demand at a proportionate rate, little 
or no effect will occur in prices unless from other 
possible contributory causes. Purchasing agents are 
apt to overlook or ignore the important factors of 
supply and demand so far as their effect on general 
purchases are concerned. But every buyer is inter- 
ested to some degree in some product. Traders in 
such commodities as wheat, cotton, copper, or coffee 
are keenly alive to the necessity of being thoroughly 
posted on the supply and demand of the commodities 
they deal in. Voluminous statistics are kept by 
them. Agents report to them regularly, and special 
avenues are kept open through which this informa- 
tion can be obtained. Without such information no 
firm could hope to compete successfully with those 
equipped with it. 

Contributory causes of price changes are so many 
and so varied that only a few can be mentioned. The 
general state of business is, of course, one of the de- 
termining factors. 

Sectional depression is another cause, but one not 
so prevalent in this country as it once was. Tliis is 
because industries are becoming more widely scat- 
tered. The prosperity of the Southern States, for 
instance, is not now entirely tied up with cotton. If 
any particular industry is more prosperous than an- 
other, other industries must benefit from this pros- 
perity, and this tends to keep industry in general on 
a common level. Better communications, transpor- 



tation, and the spreading and diversification of man- 
ufacturing throughout the country all exert an equal- 
izing effect on business conditions between the vari- 
ous sections. 

Another factor affecting business, and therefore 
prices, is politics. This is not only because the tariff 
question is kept alive, but also because of the attitude 
of politicians towards capital and labor. If the tariff 
question were settled on a scientific basis and both 
capital and labor were satisfied that a square deal 
would always be accorded them, business would be- 
come more stable. 

Strikes, lockouts, freight embargoes, and other dis- 
turbances also upset markets, and, in the case of 
perishable goods, create at least a temporary demor- 
alization in the prices of the goods affected. 

Trade Cycles and Prices.— What is a normal con- 
dition of business? Either prosperity or depression 
might endure so long that the resulting condition 
could rightly be regarded as normal. But business 
is nearly always moving in cycles, and at each period 
of the cycle a different buying policy should prevail. 
Wliile the high and low points of a cycle may not 
reach such acute stages as to be designated '* pros- 
perity" and ** depression, ' ' these terms will be used 
here for illustration. 

First Period: Liquidation. This period is indicated 
by declining prices, and the buyer's policy during 
such a period is to purchase only what is abso- 
lutely necessary— to accumulate no stocks of raw 
material, and to keep the minimum amount on 



I 



74 



PURCHASING AND STORING 



THE PRICE 



75 



hand that will assure the production department 
a supply equal only to its immediate needs. 

Second Period: Depression. During this period 
more confidence can be displayed in buying as low 
prices prevail; but it is not wise to purchase too 
heavily until there are signs that the liquidation 
period has exhausted itself. 

Third Period: Improvement. This period is an era 
of advancing prices, and buying can proceed con- 
fidently for requirements as far ahead as one's 
finances will permit. 

Fourth Period: Prosperity. It is taking consider- 
able risk to buy heavily during such a period as 
this. Prices are high and irregular, and great care 
should be exercised in making [mrchases. Some 
commodities will reach the peak prices earlier 
than others; while many may fluctuate in a most 
tantalizing manner, touching the liigh point several 
times during the period. 

Exports and Prices.— The exports of this country 
are normally greater than its imijorts. When this 
condition reaches abnormal proportions, as during 
the shipment of supplies to the European nations 
during the war, it has a distinct influence on prices. 
We are sending away our wealth in the sha])e of 
steel, copper, and other metals in raw, semi-manu- 
factured, and finished manufactured products, and 
also a great many commodities. The available sup- 
ply decreases and prices advance, but the situation 
is aggravated by the fact that we receive in ex- 
cliange large amounts of cash. Thus our wealth in 



actual cash is increased abnormally, and the money 
so obtained may be used improperly for speculative 
purposes, creating unhealthy booms. Even if it is 
used for investment in real estate or in the purchase 
of automobiles, it has the effect of advancing the 
real estate values and the prices of automobiles. 

If we had need of or could accept other material as 
imports to offset our exports, prices of many things 
would remain more stationary. This is the condi- 
tion in Great Britain and in other countries where 
the imports have always been largely in excess of 
exports. Of course, large amounts of cash due us 
from other countries in payment for the exports 
have never reached us, but instead have been used 
to liquidate the debts we owe to those countries. We 
have been losing material possessions, but we are 
becoming independent financially. This may be going 
a little beyond the subject under discussion, but is 
intended to show what effect abnormal exports have 
on prices and in what manner a surplus of money 
will influence them. 

Price Authority. — The purchasing department 
should be supreme throughout any organization on 
all questions of prices of materials and supplies, 
whether used in the production department or not. 
Sellers should not be allowed to quote to heads of 
departments; to do so weakens the authority of the 
purchasing agent. When he is known to be the court 
of last resort, he becomes an element of power to be 
reckoned with. 

Many establishments maintain an extensive esti- 
mating department, and quite often this department 






76 



PURCHASING AND STORING 



THE PRICE 



77 



needs prices of certain materials for the contracts 
on which it is estimating. Those prices should al- 
ways be obtained through the purchasing depart- 
ment. There are several reasons for this: the de- 
partment should know the best source of supply; the 
price knowledge of the department is increased, and 
finally its records are enriched by tabulating the in- 
formation obtained. 

Negotiations leading to the establishment of a 
price with the seller should be entirely in the haiid§ 
of the purchasing agent, and he should be sole ar- 
biter in all the final arrangements. 

In making a decision as to best price or with 
whom an order should be placed several factors, such 
as cash discounts, terms, f . o. b. points, etc., must be 
considered. These, however, open up such a wide 
range of possibilities that their discussion will be 
left to another chapter. Assuming that each bid<ier 
stands equally on these contingent possibilities, the 
present discussion will be confined to the manner 
of getting the lowest price. 

Manipulated Prices. — Taking the most disagree- 
able feature first, the question of manipulated or 
artificial prices will be considered. Anything of this 
nature is a source of annoyance and irritation 
to the buyer because, in most cases, he can do so 
little to evade paying the inflated price. Many buy- 
ers, not knowing when a price is artificial or is not 
warranted by conditions, pay it in happy ignorance; 
but the astute buyer knows, because his observations 
and records of available quantities and market con- 
ditions have kept him informed. 



In the case of a patented process or article the 
manufacturer is entitled to a fair and legitimate 
profit, not only on his manufacturing costs, but also 
on his work in developing and perfecting the process 
or article. No buyer can object to paying a price 
arranged on such a basis; but when, by manipula- 
tion or combination, a price unwarranted by known 
and existing conditions is quoted, the buyer has every 
justification in attempting to get around it. 

Unfortunately, as a rule, there is very little the 
buyer can do. It is in such instances, however, that 
his knowledge of substitutes, as previously men- 
tioned, or his ability to develop a new market, may 
stand him in good stead. 

Competitive Prices. — Unrestricted, open competi- 
tion is a pleasant field for the purchasing agent to 
browse around in, for here his activities can have 
full play. This method of securing bids from two 
or more sellers must be employed irrespective of 
how profound a knowledge of prices one may have. 
The firms asked to quote must be competent to 
handle the business. Any concern whose bid will 
not be considered in the last analysis should not be 
asked to quote. It is a waste of both the buyer's 
and the seller's time. The wording of the invitation 
to bid should be lucid, and should state distinctly 
the quantity, grade or quality, and be accompanied 
by complete detailed specification if necessary. It 
should be stated whether a lump sum price or unit 
price is desired. The unit price method is generally 
favored, because if there should be any change in 
quantities between the time the inquiry is sent out 



78 



PURCHASING AND STORING 



THE PRICE 



79 



and the order placed change can be automatically 
taken care of. Unit bids are also useful for record- 
ing the separate prices, as well as for future refer- 
ence. 

Having these competitive prices tabulated for ex- 
amination several salient points may possibly thrust 
themselves on the attention of the shrewd buy(ir. 
Should all quotations be uniformly equal it will indicate 
cither that manufacturing methods are so standardized 
and perfected that all bidders are figuring on a 
similar basis of costs, or that some trade agreement or 
combination exists for maintaining prices at a fixed 
level. Should one quotation be notably lower tlian 
all the others, a master of prices would rightly regard 
it with some suspicion, and his sound knowledge of 
prices would suggest to him that the goods could not 
be produced at the figure named unless the quality 
were inferior. But just because a quotation is low is 
not an adequate reason for discarding it entirely, for 
assuming that a reputable concern, as should be the 
case, has made the quotation it is worthy of con- 
sideration. On investigation it may be found that 
there are good and sufficient reasons for the low price. 
It may have been induced by a desire on the part of 
the seller to keep a section of his factory in opera- 
tion, or to reduce a surplus stock of material. 

When bids on identical specifications show wide 
variations, the purchaser should immediately find out 
whether any double meaning could be read into the 
specification, and it is advisable to interview both 
the highest and lowest bidders and go over their 
proposals. This will bring to light any misconcep- 



tions which may exist. Variations in quoted prices 
quite often occur in the purchase of tools and ma- 
chinery, because it is the practice of some makers to 
quote for the bare machine, while others will include 
some additional parts and attachments. For this 
reason all quotations for machinery equipment and 
appliances should be carefully scrutinized. 

These instances come up in the course of every 
active purchasing agent's work. By way of illus- 
tration: an inquiry sent out for some voltmeters and 
ammeters mounted on slate panels elicited a reply 
quoting for the instruments **as shown in our 
catalogue pages 53 and 56.'' This quotation was for 
the instruments required and was in every way ac- 
ceptable — except, on reference to the catalogue, it was 
found that only the bare meters were illustrated; 
hence, the quotation did not include any panels, or 
even the lugs for them! For his own protection a 
buyer should carefully check up any references to 
catalogues or prints. In the case cited it may not 
have been intentional on the bidder's part to call at- 
tention to the fact that he had not included the 
panels, but if the order had been placed the respon- 
sibility would clearly have rested upon the buyer. 

Strategy in Arranging Prices.— Much misinforma- 
tion exists as to the manner in which a purchasing 
agent's activities are conducted. The opinion is far 
too prevalent that he exists mainly to beat down the 
seller's price. This may have been true at one time, 
hut to-day sellers will not tolerate much of this, even 
if buyers were generally disposed to use such tactics. 

Probably no two purchasing agents go about their 



80 



PURCHASING AND STORING 



THE PRICE 



81 



job of buying on exactly similar lines, but all buyers 
have a common object — to obtain the lowest price for 
the goods they are ordering. The desire to close a 
deal at the right price and secure every concession 
possible from the seller is a phase of the commercial 
instinct which must be present in every good buyer. 

Tactics and strategy play their part in the negotia- 
tions leading up to the actual placing of an order, 
but not to the extent they formerly did when busi- 
ness was done on more direct lines. The present 
ramifications of business call for entirely different 
methods than those which prevailed when the 
producer and consumer were nearer to each other, 
when jobbers, salesmen, and other intermediaries 
were not so numerous, and when manufacturing was 
not so highly specialized as it is now. 

It was not so long ago that the generally accepted 
theory of the qualifications necessary for a good buyer 
was an ability to bluff the seller and to adopt some 
such tactics as have been so well illustrated in '* David 
Harum." While developments have been taking 
place in the function of buying, the old-fashioned per- 
suasive type of drummer has been giving place to 
the modern scientfic salesman. 

Despite the fact that the modern buyer is sur- 
rounded by an accumulation of facts concerning his 
purchases, his sources of supply, records and prices, 
and other information on which to base his judgment, 
there are situations which arise in the experience of 
every buyer when tactical and strategic moves are 
necessary to put through a deal on satisfactory lines. 

If a buyer relied solely on the information he has 



scientifically accumulated, it might tell him to do one 
thing, whereas his instinct for a good purchase might 
suggest doing something different. The records 
which are gathered by purchasing agents have had 
a tendency to eliminate the purely trader's instinct 
from the buyer's psychology, but that this instinct is 
still necessary cannot be gainsaid. 

Bujring Methods. — Buying methods have changed 
considerably in recent years, and the tendency among 
manufacturers and suppliers is to quote the lowest 
price they can consistently make. They do not ex- 
pect or wish to quote a second and lower price. One 
reason for this is that they now have more accurate 
cost accounting systems and, hence, can more cor- 
rectly determine their costs, and therefore their selling 
prices. When a manufacturer is uncertain of his 
costs he is usually uncertain as to the price he quotes, 
and is frequently susceptible to an offer of an order 
at. a lower price. A large and shrewd buyer once 
made the statement to the writer that the first price 
quoted by a manufacturer was never his lowest price. 
To a certain extent this may have been true at one 
time, and resulted in innumerable schemes and con- 
siderable maneuvering on the buyer's part to get a 
reduction in the price. 

With the standards now maintained by most con- 
cerns the practice of offering an order at a lower 
price cannot be defended. If such were the general 
custom of a buyer the prices quoted to him would 
always be on a basis which could be scaled. Many 
Hianufacturers will not consider or sanction methods 
of this character. 



82 



PURCHASING AND STORING 



THE PRICE 



83 



Nevertheless, there are instances where an order 
might be ** offered" to a manufacturer. This has 
been done many times recently in those cases wlu»re 
the concern quoting the lowest price was so loaded 
up with work or so located on a transportation line 
that prompt delivery was extremely problematical. 
In such an instance the buyer is justified in endeavor- 
ing to get another manufacturer more favorably 
located to meet the competitive price. 

Examples of Buying Methods. — A case in which a 
purchasing agent did some thinking outside of his 
routine work occurred in connection with an order for 
malleable iron castings. These had always l)een 
bought in quantities of ten thousand at a time and 
had been purchased from one foundry. The original 
pattern had been made by the foundry, and the 
sample casting submitted by them had been approved. 
A new man was put in charge of the purchasing, and 
the first time he was called upon to buy these par- 
ticular castings he sent blueprints to several foundries 
with requests for quotations. The concern that had 
always supplied the castings was the lowest bidder, 
and there seemed no reason why it should not receive 
the order. 

The price quoted had been per pound, but the pur- 
chasing agent asked for second bids, the unit ])rice 
to be per casting. As a result two quotations were 
received lower than the one from the foundry that 
had always supplied the castings. On investigation 
it was found that the original pattern had been made 
too full all over, making the castings twenty per cent 
heavier than necessary. Consequently a saving of 



nine hundred dollars was effected in the quantity 
ordered. Had the purchasing agent been content to 
accept the quotation per pound instead of checking it 
with a unit price for each casting his company might 
have gone on indefinitely paying for twenty per cent 
more metal than they needed. 

In negotiating for a six months' supply of machine 
bolts, a purchasing agent had a problem to solve 
which comes to every buyer at some time. He had 
determined from his records and information that a 
certain manufacturer was best fitted, equipped, and 
located to handle the contract, but his price was 
higher than several others. On careful consideration 
the purchasing agent felt that he was not justified in 
paying the higher price, but at the same time did not 
abandon the idea of getting him to accept the eon- 
tract. 

He kept the negotiations open until the time was 
approaching when deliveries would have to com- 
mence, and he felt he could not safely postpone doing 
something. In delaying the closing of the contract he 
had the salesmen of the bolt manufacturers anxious 
and uneasy, and finally the one representing the low- 
est bidder signed a contract for an order of a small 
quantity and gave the purchaser an option on the 
whole quantity. Having this as a safeguard, the pur- 
chasing agent was able to adopt an attitude of com- 
plete indifference to the other manufacturers. Hence, 
when the specified date arrived on which deliveries 
should begin, the manufacturer with whom the pur- 
chasing agent desired to make the contract offered to 
sign up at the price of the lowest bidder. 



84 



PURCHASING AND STOlilNG 



THE PRICE 



85 



The first contract was something to fall back on, 
and was made as an insurance against being left if 
the other manufacturer did not come to the terms and 
price the purchasing agent felt justified in paying. 
The small quantity specified in this contract was 
taken, and the purchasing agent was also able to give 
more business for other material to the same con- 
cern; but the main contract for bolts went to the 
manufacturer who had been selected in the first place 
by the purchasing agent as the one to whom the 
preference should be given if the prices were equal. 

Diplomacy cannot be systematized, tabulated, nor 
card indexed, but it can be developed, and every pur- 
chasing agent will find ample use for it. The simple 
cases related are actual experiences, Imt there are oc- 
casions when the moves made in negotiating a pur- 
chase are very much more intricate and involved. 
The intent has been to point out th(» value of using 
a little diplomacy in conjunction with the scientific 
knowledge which every purchasing agent should 
possess. A too rigid adherence to fixed methods 
would be a deterrent in many cases, while the adop- 
tion of somewhat different tactics would consummate 
many a deal on satisfactory lines. 

Resale Prices. — Certain manufacturers elect to sell 
their product through jobbers, dealers, merchants, or 
whatever trade name these middlemen do business 
under. It is the custom for the manufacturer to sell 
to the dealer at a lower figure than to a consumer. 
This is the dealer's protection. Sometimes a manu- 
facturer will rigidly adhere to this policy, while 
others will sell to whomsoever they can. Abuses of 



these ramifications of business arise in every direc- 
tion, and it is not proposed to discuss them here; but 
a purchasing agent should know when they exist, and 
he can only gain this by experience. 

Some purchasing agents are legitimately entitled 
to a ** resale" price. A builder of machine tools, for 
instance, who does not build the motors for operat- 
ing them can always obtain a ** resale" price on 
motors if they are to be sold again with the machine. 
This condition applies to many articles which are 
finished machines or appliances in themselves, but are 
purchased to form part of another equipment. 

Many buyers for large corporations obtain the 
regular discount allowed to dealers simply by reason 
of the large consumption by their establishment. 
Again, some manufacturers have a sliding scale of 
discounts; to the largest buyers the largest discount 
is quoted, and this discount diminishes in a ratio 
proportionate to the amount of the purchase. Such 
a policy has been bitterly assailed by some on the 
grounds that it places a handicap on the small user 
and favors *^big business" interests. There is some 
truth in this contention, because the big buyer often 
may not take any larger quantities at one time than 
the small one. 

Price Based on Performance. — This method of 
establishing prices has been slowly developing and is 
steadily growing in favor, but at present is confined 
to a very limited number of articles. No reason 
exists why it should not be extended in connection 
^vith more scientific manufacturing and the standard- 
isation of products and commodities. Technical 



86 



PURCHASING AND S'lOlilNC 



THE PRICE 



87 



knowledge of materials, new ideas and inventions in 
manipulating these materials in the manufacturing 
process, and, finally, skill and long practice in the 
application of the finished article to its ultimate use, 
are bringing about a condition where the producers 
and sellers are abl'e to guarantee certain definite re- 
sults. 

Railroads have long bought lubricants for rolling 
stock on this basis. Coal is quite commonly paid for 
on the number of heat units generated. Brake shoes 
and automobile tires are other well known examples 
of price based on economy of operation. With more 
definite information regarding performance under 
operating and manufacturing conditions there is no 
reason why this form of buying should not spreaii. 

Price Guaranties. — Many sellers are quite willing to 
enter into agreements to guarantee certain prices for 
a fixed period of time. Not only will they undertake 
to furnish all the buyer's requirements of the material 
stipulated during the stated period, but they will go 
further and guarantee the purchaser against any de- 
clines in the market price during the life of the agree- 
ment. Many buyers have fought shy of purchasing 
on this bases, either because the conditions did not 
appeal to them as equitable or because of a fear that 
by tying themselves up to one source of •supply they 
would, at the expiration of the agreement, have a 
limited competition for future requirements and 
would be liable to a **hold up" on the part of the 
original seller if the price in the meantime had gone 
against him and had involved him in a loss. 

The first reason has no foundation in fact. If it is 



Inequitable in that it obliges one party to assume a 
risk not shared by the other it cannot long be main- 
tained. Prices can be guaranteed without undue risk, 
because the guarantor has a like guarantee for his 
raw material and can calculate his labor and overhead 
expense very closely for the period of the contract, 
with the strong probability that they will remain 
stationary or nearly so. Any risk of advance in these 
is offset by the possibility that he may be able to re- 
duce them. 

More tangible reasons to support the contention that 
the buyers' market would be restricted by entering 
into such price agreements might occur, but these 
apply only in those instances where the sources of 
supply are limited. If there are only a few sources 
and each one of these ties itself up with certain 
buyers, the sellers can virtually control the situation 
when the time comes to make renewals. The buyer 
can overcome this obstacle, however, by covering his 
requirements by price guarantees with tw^o or more 
sellers. This will be more fully considered in the 
discussion of orders and contracts. 

Price Maintenance. — The following quotation, from 
an editorial in the New York Times, is of considerable 
interest because it discloses the fact that Congress is 
taking notice of the practice of selling at a lower 
price articles absolutely identical with patented ones 
and made by the same manufacturers. 

The matter of price maintenance, which has engaged the 
attention of Congress at odd times for several years, promises 
to come in for further notice. Among the first of the bills 
introduced on the day when Congress met was the one by 



88 



PURCHASING AND STORING 



Representative Stephens of Nebraska, which failed to pass in 
the session that closed on March 4. As a pendant to it was 
another bill, with an additional section, which is peculiar. 
This new feature makes price maintenance not apply where 
the label or container does not show the source of production, 
and concerning which no representation is made that it is the 
''product of, or associated with, the name and reputation, of 
any grower, producer, manufacturer, or owner of a trade- 
mark or special brand." Such a provision would seem to 
intimate that a number of producers and manufacturers have 
made it a practice to turn out goods without their distinguish- 
ing labels, which have been sold at lower prices than goods 
that were branded. A number of such instances have been 
referred to in the discussions of the subject of price main- 
tenance, many of them referring to foods. The practice, how- 
ever, is not unknown in the textiles. Those who sold such 
goods gave their customers to understand that the lack of 
trademarks or labels enabled them to get identical articles at 
lower prices. They would not be able to make such repre- 
sentations should the proposed legislation be enacted. It is a 
little difficult to make out whom this would hurt most. 

Other Arrangements. — ^Prices are sometimes ar- 
ranged, as previously mentioned, on a sliding scale 
basis, the scale conforming to the quantity bought by 
the consumer. Again, prices may be arranged at a 
certain percentage plus or minus the market. Inhere 
are also prices fixed by implication. These occur in 
**pick up," *'rush," and emergency orders, no price 
Keing actually mentioned, the supposition being that 
the prevailing market prices will api)ly. 

After all is said about prices the fixing of the price 
at which an order is closed is a mutual affair. Sellers 
do not like to think that they are dictated to by the 
buyer, and salesmen of repute would scorn such an 
imputation. On the other hand, purchasing agents 
are apt to feel that prices are largely controlled by 



THE PRICE 



89 



supply and demand, added to which is the influence 
of his personal acumen and perspicacity. 

It should be borne in mind that abnormally high 
prices are always subject to decline, and quite 
frequently the decline is at a more rapid pace than an 
advance would be. When prices are rising there are 
always some orders placed in anticipation of still 
higher prices, while in the decline the tendency is to 
hold back for lower prices. This accelerates both the 
rise and fall. 

Speculation and gambling, as the terms are gen- 
erally understood, should have no place in the pur- 
chasing agent's psychology, but it requires no genius 
to buy at the ruling or normal prices. To keep a 
close watch on the trend of prices and movements of 
commodities, to study all factors that may influence 
an advance or decline in values, to buy sparingly 
when prices are on the down grade and liberally when 
on the up grade, and finally to evade the evil of over- 
buying at the break of the market, is not speculation 
or gambling — it is purchasing reduced to a science. 



CHAPTER V 



THE CONTKACT 



Care in Making the Agreement. — Every buyer 
should have due appreciation of the importance of 
orderly procedure in arranging all tlie details of his 
orders and contracts. Intelligent care must be exer- 
cised, and there must be rigid adherence to a few 
simple essential rules and methods, both prior to the 
placing of an order — while the negotiations are in 
progress regarding prices, terms, and other details — 
and when the order is being actually closed, either 
verbally or in writing. For his own protection, and 
to prevent disputes, the primary interest and concern 
of the buyer should be the strict ol)servance of the 
elementary rules with respect to th(» constitution of 
the contract, in order that all the stipulations con- 
tained in it may be clear, exact, and comprehensive. 

Before any purchase can be consummated the two 
parties concerned — i.e., the buyer and the seller — 
must reach an agreement. This agreement, whatever 
the manner in which it is reached, is the all-important 
basis of the contract. In fact, the agreement is the 
contract, and all the future relations between the two 
parties, in so far as the particular transaction is con- 
cerned, are governed by this agreement. 

The agreement to buy and sell must consist of an 

90 



THE CONTRACT 



91 



offer by one party and its acceptance by the other. 
This implies that there must be a complete mutual 
understanding of the exact and definite nature of the 
material or article being bought and sold, the price, 
terms of payment, and other conditions. In the gen- 
eral practice of purchasing, innumerable questions are 
continually arising after an order is placed, regarding 
the stipulations and conditions of the agreement. 
These questions lead to an examination of the factors 
on which the agreement was based, and in cases of 
dispute it will always be found that the misunder- 
standing has been caused by insufficient attention 
being given to some essential details. 

Verbal Orders. — If an agreement is reached between 
buyer and seller solely through conversations, it is a 
verbal contract ; a very large number of contracts are 
closed in this way. The conditions governing pur- 
chasing for industrial establishments demand that 
these verbal agreements be reduced to writing, and it 
is important that formal orders embodying the 
features of the agreement be written up and delivered 
to the seller. 

Written Contracts. — These are necessary not only 
for the smooth and efficient working of the physical 
and mechanical features of a purchasing agent's office, 
but because of the practical desirability and even 
necessity of written communications. If an agree- 
ment has been reached verbally there should be no de- 
lay in putting it into writing, and certainly this 
sliould be done before the seller has taken any steps 
to manufacture or deliver the goods. If there has 
been any misunderstanding, it is then brought to the 



92 



PUKCHASING AND STORING 



THE CONTRACT 



m 



attention wlien the contract is put in writing, and 
mistakes can be rectified and adjusted in the earliest 
stages, while all the details are fresh in the memory. 

Preliminary Communications. — I have already em- 
phasized the fact that the negotiations, communi* na- 
tions, and dealings leading up to the consummation 
of the transaction are of primary importance. It is 
of the utmost importance, also, that tliese be carried 
on in the clearest possible way. Memoranda should 
be made of all prices and figures quoted in inter- 
views or by telephone. The buyer should ask the 
seller to confirm immediately in writing any under- 
standing arrived at in this way, or he should himself 
forward at once to the seller a formal order embody- 
ing the agreed terms and conditions, at the same time 
making reference to the verbal arrangement on which 
the order is based. 

For the clearer understanding of the preliminary 
and final negotiations, and for the purpose of having 
these follow a well-defined and regular course, it is 
absolutely necessary to have standardized forms for 
all communications that pass betw(^en buyer and 
seller. These include well-recognized forms for re- 
questing quotations and the acceptance of offers 
either by letter or by telegram, and forms of orders 
issued with or without a preliminary agreement con- 
cerning the exact terms. 

Distinction Between Offer to Sell and Tentative 
Bid. — It is important from the viewpoint of both 
parties, that a distinction be made between an off<»r 
to sell and a tentative bid. A buyer might so frame 
a letter that it would convey the meaning that he is 



making an offer to buy, whereas he may only wish a 
quotation, or an offer to sell, from the vendor. Any 
communications from sellers, naming prices, should 
be closely scrutinized, for it is important to determine 
whether there is really a definite offer to sell or only 
a tentative quotation. If a buyer wishes to take ad- 
vantage of an offer to sell, he should promptly com- 
municate his acceptance in writing. Sometimes a 
quotation will be made subject to acceptance within 
a specified time; such a limitation implies an agree- 
ment to sell before the date named. It is often ad- 
visable for the purchaser to ask for bids containing a 
stipulation of this character, to enable him to consult 
with others before closing the deal. 

A fact to be remembered is that if an offer is made 
by either party, and in communicating an acceptance 
the other party makes modifications of any kind, the 
negotiations do not constitute an acceptance, but are 
in themselves a new offer and are in like manner sub- 
ject to acceptance or rejection. Since an offer and an 
acceptance are the essential elements of a contract, 
tlie purchaser should see that the negotiations are 
conducted with some definite understanding. The 
purchaser should clearly distinguish, in his dealings 
with the seller, between definite proposals the accept- 
ance of which would constitute a contract, and others 
which are only tentative in their nature. 

Changes in Contracts. — As it is assumed that when 
formally written up and executed the order, or con- 
tract, embodies and conveys the true meaning and in- 
tent of the offer and acceptance, it follows that the 
order is irrevocable except by mutual consent. 



94 



PURCHASING AND STOKING 



THE CONTRACT 



95 



Should any modifications be desired by either parly 
they can be effected by the cancellation of the con- 
tract and the forming of a new one on the basis of 
the new understanding, or in most eases it is suffi- 
cient to follow the procedure by which the contract 
vv^as originally made. That is, one party can make an 
offer to modify it, and can secure an acceptance from 
the other party. 

What the Contract Should Include. — ^It is extremely 
important that both parties clearly understand the 
nature of a contract, or order. I therefore give below 
the items that a contract should include: 

1. The date of the contract. 

2. The names of both buyer and seller. 

3. The quantity of goods being contiacted for. It is 

comparatively simple to state in figures or 
words, or in both, the exact amount being pur- 
chased. 

4. A proper definition of the quality, nature, charac- 

ter, style, grade, or other description that will 
absolutely and positively identify the article in 
clear, unmistakable language. The importance 
of doing this has been emphasized in Chai)ter 
II, and will be further discussed in the suc- 
ceeding pages. 

5. The time when delivery is required. 

6. The place at which, it is agreed, delivery shall be 

made. 

7. The price to be paid by the buyer. There are two 

methods in general use for naming a price. It 



is done by stating either the price per unit or a 
lump sum price. Both methods are compara- 
tively simple— they have been fully covered in 
Chapter IV. 

8. The date of payment. 

9. The method of payment, and any special terms, 

cash discounts, and other features agreed upon. 

Definition of Quality, or Grade.— Further discussion 
of some of the clauses mentioned is essential to a 
proper understanding of their importance. It is an 
implied condition of an order issued in the general 
way that the buyer may reject the goods if they are 
not of the kind and description specified in the order. 
But he has no remedy against the seller— he can only 
reject the material tendered. 
If the production work of a factory is absolutely 
^^ dependent for its success on the obtaining of a par- 
ticular grade, size, or weight of material, then it is 
essential that the contract contain a positive promise 
and undertaking by the seller to deliver such particu- 
lar grade, size, or weight. With this undertaking ac- 
cepted by the seller, the buyer can hold him for 
damages for any loss the latter may have been put to 
on account of the seller's not delivering the right 
goods. It may be necessary in some cases to secure a 
warranty from the seller, which would entitle the 
buyer to a definite remedy in the event of a failure on 
the seller's part to deliver exactly the right kind of 
goods. The determination of quality in such cases 
should be decided by such analytical or physical tests 
as may be agreed on and stipulated in the contract. 



96 



PURCHASING AND STORING 



THE CONTRACT 



97 



Time of Delivery. — The time for delivery is a very 
serious matter in the case of some purchases, and it 
should be clearly set forth whether delivery is re- 
quired in instalments, and at what times, or whether 
a total delivery is required and th(» date of that de- 
livery. Prompt delivery on a certain date may be a 
matter of great moment to the purchaser — if he 
does not receive the material, he may suffer serious 
losses. In such a case, the buyer must see that "a 
clause is inserted to the effect that the time of the 
delivery is ''the essence of the contract," and that in 
the event of failure to deliver on the specified date, 
the buyer may cancel the contract and purchase else- 
where. 

Sometimes it may be necessary to include a clause 
providing that if the material is not delivered on 
time, the seller shall be liable to pay to the buyer a 
certain fixed amount, usually designated ''liquidated 
damages." Such damages, however, are not enforce- 
able against the seller by way of punishment for non- 
delivery. It must be shown that the purchaser has 
sustained actual loss on this account. 

Place of Delivery. — The question of transportation 
charges is often an important factor in the cost of 
material. It is essential, therefore, for the buyer to 
secure from the seller all the concessions and ad- 
vantages he possibly can. It must be borne in mind 
that the place of delivery, or the f. o. b. point, is 
where the ownership of the goods passes from seller 
to buyer. If the agreement is "f. o. b. point of ship- 
ment," and the goods are lost or damaged in transit, 
the buyer must nevertheless pay for them, although 



he has never seen them or had physical possession. 
His only remedy lies in a claim against the transpor- 
tation compOT. 

On account of the fact that this condition governs 
the transfer of ownership, every buyer would 
naturally prefer placing all orders on the basis of de- 
livery being made by the seller to the buyer's factory, 
or to the destination where the material is to be used. 
The attitude of the sellers, however, renders this im- 
possible of accomplishment. It is therefore obliga- 
tory on the buyer to secure all the concessions pos- 
sible, if he desires to close the transaction on the 
most economical basis. 

When a purchase can be made "f. o. b. destina- 
tion," then the buyer should insist on the seller's pre- 
paying transportation charges. This is important be- 
cause if the freight is paid by the purchaser, he has 
to provide finances for this purpose, and there is the 
attendant clerical work of checking freight bills and 
having in force an infallible system by which these 
charges are debited to the seller. 

Many transactions are closed on the basis of **f. o. 
b. point of shipment," with partial freight allowance 
or full freight allowance to destination. This is done 
by the seller to relieve himself of responsibility for 
the material in transit; it also enables him to meet 
the competition of other sellers who are more favor- 
ably situated geographically. Even in those cases in 
which arrangements are made "f. o. b. point of ship- 
ment," with no freight allowance, it is sometimes pos- 
sible to induce the shipper to prepay freight. If a 
purchaser can make such an arrangement he has 



98 



PURCHASING AND STORING 



THE CONTRACT 



99 



gained an important concession, for he is getting the 
seller to carry and finance his freight bills. 

Terms, and Time of Payment. — When any one is 
negotiating for a purchase, the price is naturally the 
main consideration and the point on which the greatest 
stress is laid, but there are some minor points con- 
nected with every order placed, to which attention 
should be directed. Although they are subsidiary to 
the major point, it must not be inferred that they are 
of little importance. In many cases it will be found 
that even if these points are secondary, many 
economies in buying can be effected through a study 
of them. In short, no good buyer can afford to ignore 
them, for they may have an important influence on the 
merits of his purchases and on the efficiency of the 
service that he is able to render his concern. 

In spite of the fact that in connection with certain 
lines of goods and in certain trades there are estab- 
lished rules and terms which are supposed to be 
strictly adhered to, nevertheless they are deviated 
from; and in other transactions, in which no fixed 
rules abound, the buyer and seller are always free to 
arrange terms. This fact goes far toward detei*min- 
ing the economy of a purchase, and large use can be 
made of it by the purchaser in closing a negotiation. 
For this reason, a study of this feature is essential 
to good buying. 

Any establishment that is in a strong financial 
position can effect savings by taking advantage of all 
cash discounts secured by the purchasing agent, and 
can at the same time place a strong weapon in the 
agent's hands by enabling him to conduct his nego- 



tiations on the assured basis of the cash being ready 
at any moment to take care of the obligations he is 
incurring for the concern. A knowledge of this fact 
will naturally attract the best there is in the market, 
and will save the purchaser the considerable work of 
searching for sources of supply. Another advantage 
is that whenever there is a bargain to be offered for 
sale, it will undoubtedly be presented first to those 
houses that are in the best financial position. 

It would seem, then, that the buyer who is not 
backed up with substantial finances is laboring under 
great disadvantages. To a certain extent he is, but 
this is a reason why he should use greater energy and 
put forth every endeavor to secure terms fully as ad- 
vantageous as those secured by his more favored con- 
temporary. This cannot always be done, but by 
mean? of skilful trading and clever and judicious 
negotiating much can be accomplished. A purchas- 
ing agent who is placed in such a position, and who 
is able to secure for his company the best terms, is 
indeed a valuable asset. 

It is not the regular terms recognized and allowed 
in many lines of business that I wish to emphasize. 
It is assumed that these can be obtained by every 
purchasing agent, practically without asking, but it 
is when special purchases are made and special terms 
arranged, and when better terms can be secured than 
those generally recognized as regular, that an actual 
saving is made. 

The time element is also an important factor, par- 
ticularly with those concerns that work on a limited 
amount of capital. In such cases a buyer can be of 



100 



PURCHASING AND STORING 



THE CONTRACT 



101 



considerable value if he can arrange payments on long 
time; but if this has to be done at a sacrifice of price 
or cash discount, no saving will be effected. It is 
therefore of paramount importance to secure, first, the 
lowest price, and then the longest time or the largest 
cash discount. After every possible concession in the 
matter of time and discount has been secured from 
the seller, a review of the financial position of the 
buying concern will determine on what basis to close 
the negotiation. If facilities are available for bor- 
rowing money at the usual recognized commc^rcial 
rates, it will invariably be found tliat it is economi- 
cally advantageous to borrow, and to secure the cash 
discount rather than buy on extended time. 

A study of these various problems is a science, and 
even small establishments may derive considerable 
benefit by giving close attention to them. 

Cash Discounts. — Discussions have taken place in 
regard to cash discounts, and tentative movements 
have been initiated with the object of entirely elimi- 
nating such discounts, but very little has been ac- 
complished in the way of making the practice uniform 
throughout all classes and sections of business, al- 
though in some lines it has been put into effect and 
rigidly adhered to. Opinions differ greatly as to the 
wisdom of the entire elimination of cash discounts, 
but there is one positive conclusion: namely, that if 
all cash discounts were abolished and all goods sold 
on the basis of payment in, say, thirty days, some 
concerns could pay but others could not. The result 
would be that those that could not would be penalized 
to the extent of what it would cost them to borrow 



the money from their banks to make the payments. 
This drawback might not be so expensive as the loss 
of cash discounts under the present system, but it 
would be a heavy handicap. 

Buyers, however, have to deal with the conditions 
as they are, and not \4bh a theory. It is well, there- 
fore, to note a few instances of what it actually means 
lO a business when cash discounts can be arranged 
with the seller. Granted that thirty days is the net 
time for payment, if the seller is willing to allow one 
half of one per cent for cash in ten days, it means 
that he is willing to forego this percentage to obtain 
his money twenty days earlier, which is equivalent 
to over 9 per cent a year, one per cent for the same 
period is just double this, and two per cent is over 36 
per cent a year. If the net time is 60 days, these per- 
centages, of course, decrease materially but are still 
an important item. 

It would seem that these illustrations prove con- 
clusively that important savings can be effected by 
borrowing money at, say, six per cent in sufficient 
amount to pay all bills less the cash discount. But 
the fact must not be overlooked that the precise 
amount cannot be borrowed for the exact time be- 
tween the discount date and the maturity date of an 
invoice. Therefore a certain amount of borrowed 
money will be idle, but not in sufficient amount to 
offset the advantages gained. 

Probably no business custom has given rise to more 
arguments and discussions than that of giving cash 
discounts. Strenuous attempts have been made by 
some to abolish the custom entirely, and by others to 



102 



PURCHASING AND STORING 



THE CONTRACT 



103 



perpetuate it. Many claim that siieh a diseount con- 
stitutes a price concession by the seller, others that its 
use should be retained because it is a valuable aid 
in making collections. Some claim that the discount 
is a benefit to the small trader and manufacturer be- 
cause he can by means of it git his money m quickly 
for goods sold and turn his capital over oftener than 
if he received no discount. In o])position to this 
argument, it is claimed that the tliscount benefits 
large buyers only, because they are generally \n a 
position to take advantage of the cash discounts, 
while a smaller buver is not. 

However the custom of granting a cash discount is 
considered, there is no doubt tliat it is greatly abused. 
Nevertheless it exists, and certainly the purchasing 
agent cannot ignore it. It is sometimes called a form 
of price-cutting; if it is, then the purchasing agent is 
entitled to the credit of getting the concession. 

The question is receiving so much attention ])nn- 
cipally because of the abuse of the privilege thai is 
involved. But as soon as the word *' privilege'' is 
used the question is raised as to whether the discount 
is a privilege or price concession. The usual cash dis- 
count is equivalent to a very excessive rate of annual 
interest, and for this reason it is not to be supposed 
that any seller labors under the illusion that he gives 
a cash discount to aid his collections. No business 
man would sacrifice 18 per cent a year for this ob j(»ct. 
Perhaps, after all, the only cash discount that is fair 
in principle is that of a fair rate of interest for antici- 
pated payment. The discussion could be continued 
almost indefinitely. The abuses which exist are not 



caused, as a rule, by the purchasing agent, but by 
those responsible for the finances of a concern, I 
shall say more on this phase of the subject when 1 
treat the subject of invoices. 

From the purchasing agent's point of view, since 
the custom exists he should get the best terms he can 
obtain, irrespective of whether it is designated a cut 
in price, a price concession, or a privilege graciously 
extended by the seller. But he should remember this 
—nothing is gained by inserting in the order, or con- 
tract, any mention of the discount. He must make 
some provision for taking advantage of it, by getting 
invoices approved promptly. Moreover, he must not 
overlook the fact that if the material has to come 
some distance it may be necessary, in order to secure 
the cash discount, to pay the invoice before he re- 
ceives the material. 

When the terms of an order, or contract, are 
definitely agreed upon, neither party has any right to 
modify or change them. They should be just as 
strictly adhered to as the unit price. It is a common 
practice of some firms to deduct cash discounts after 
the agreed date, and of others to pay an invoice sixty 
(lays from the date, instead of thirty as agreed. 
These derelictions react upon the buyer, and curtail 
the efficiency of the service that a purchasing agent 
can render his concern, because they have a decided 
effect on the attitude which the seller adopts in his 
dealings with the buyer. 

Contracts and Orders.— Throughout this chapter I 
have referred to contracts and orders as if the terms 
were synonymous and represented exactly the same 



104 



PURCHASING AND STORING 



THE CONTRACT 



105 



thing. This is true to a large extent, but there ia a 
distinction. All the points that have been discuHsed 
apply equally to any agreement reached between 
buyer and seller, irrespective of its final form. It 
may have been entirely verbal, or it may have Ix^en 
represented in the documentary form of an order or 
contract— the distinction lies in the written forms. A 
contract form, in duplicate, is signed by both parties 
to the transaction. An order— which appears on an 
order form— is really a ''command'' from the buyer 
to the seller to proceed to make, ship, or deliver cer- 
tain goods for which the buyer has received a quota- 
tion. In other words, it is an acceptance of the 
seller's offer. The quotation and the order constitute 
the contract. The virtue of this method lies in the 
ease and simplicity of its execution. It is universally 
adopted, except in those cases already alluded to, in 
which the transaction is more intricate and involved 
and demands an elaboration in written evidence. 

No matter what form the documentary evidence 
takes, the fact remains that every arrangement or 
agreement made between buyer and seller is a con- 
tract, and is in force until carried out in accordance 
with its terms, or until mutually abrogated. 

Contract Forms.— As already stated, what is 
usually designated as a contract is drawn up in such 
a manner as to require on the document the signa- 
tures of both parties. This form is very largely used 
by industrial establishments for what are generally 
called ''blanket orders." This term is self-explana- 
tory. The blanket order literally covers the buyer's 
requirements, or part of them, over a certain period, 



and delivery of the material can be called for by the 
buyer at will, or at definite times stated in the con- 
tract. 

These blanket orders have many advantages and 
can be drawn in many forms. Some of the advan- 
tages are: protection in the matter of price for the 
period covered; generally the securing of a better 
price than for separate purchases; a saving in time in 
not having to secure quotations for each individual 
item; greater uniformity in quality, because the sup- 
ply comes entirely from one source. Depreciation in 
price during the contract period is an important ques- 
tion in all blanket contracts, and should have the 
buyer's serious consideration. In most cases it is not 
difficult to obtain protection against this from the 
seller. By a study of market conditions, as discussed 
in the last chapter, large use can be made of this 
method of buying on an advancing market, but more 
care should be exercised at other times. 

These contracts are of so many kinds, or rather 
there are so many ways in which they can be drawn 
to accord with any agreement reached, that it is im- 
possible to give illustrations of all of them. One 
form, given in Figure 15, will suffice to indicate their 
general character. The following is a brief descrip- 
tion of some of those more commonly used: 



1. 



2. 



3. 



The buyer agrees to take all his requirements 
during the period named. 

The buyer agrees to take part of his require- 
ments. 

The seller agrees to furnish a stipulated quantity, 



106 



PURCHASING AND STORING 



JOHN Smith Mfg. Co. 

S^LES CONTRACT IN DUPLIC ATE loo tern ave n.y , 



QUANTITV 



OCSCRIPTION 
AND PRICCS 



TERMS OF 
PAVMCNT 



SPCCin- 

CATION8 



ocuvcRies 



CUAnANTV 



CONDITIONS 



JOHN SMITH MFG. CO. hereby «ells and Ihe^^— 



of 



iState of - 



ptirebasos and agrees to receive and pay (or'tbe follow inR at tlie piicek and upon tlie' terms herein spcnll* 

subject to the conditions herein expressed, to be «pccifie<l for between 

.^_^^^_^_____^^_^^ the expiration date of contract, not to exceed _^_____^^^______^^ 



nor to be less than, . 



of material within the limits and of the sixes manufactureil by seller antl Mibject to seRer^s staoilard manuu> 
variations, classiflcalions and eitras. 



. freight rale si.li)( ct to 
.to des'iDjftion, 



The price or prices quoted herein are based upon the publiiihed ___^___^ 

prescribed minimum weights, lengths, and minimum charges from 

lawfully in effect at date of this agreement, vii. 

cents per 100 lbs. No freight allowance iu excess of actual weight to be ivisde. Shipments of less than HA Hms 'o he" 
invoiced f. o. b. Seller s mill. In event of an increase of such freight rati- M.t' amount of such increase hhall Ix- addi-cl 
to the price of all materials shipped against this contract during ihi- pen .1 in which such increased rale is lu efect, 
and in event of a decrease in such freight rate the amnunt of such deon i-.' shall he deducted from tbe price "»f all 
oiaterials shipped hereunder during the period in which such decreased r:tK is io effect. 



Terms . 



from dale of invoice, payable in Fiitsburg. New York or Chicago luotia. 

In case buyer shall fail to make tiayments in accordance with th.- lerms and provisions of this agte'-ment, 
seller may defer further shipments until such payments are made, or may at its option, terminate this agiet-iMenl. 
Shipmenu and deliveries under this agreement shall at all times be sulrjeet to the approval of Seller'a t redit 
Department; and, in case sellrr shall have any doubt a> to Buyer's res|nii.sibility. Seller may decline to maltr any 
shipments hereunder except upon receipt of satisfactory secunty or for i ash before shipment. Termination of the 
contract under any of these coitditions shall not prejudici^ any claim tor damages tbe seller may be entitled Io n aie 

All transportation charges to be paid in cash by buyer. 

Specifications in detail shall be furnished to the Seller in substantially equal monthly quantities begisniogf 
— day of : 19_ 



Tbe Buyer's failure to fuoiijli •(n-iinv.ttions as ap^wioted may, at s, Iter's option without notice to Buyf r, be 
treated and considered as a refusal to sppcily and receive the unspei ill • I portion of the monthly quota Final 
speciflcationa due under this coolraci to lie in the hands ol the Seller at li .^I thirty days piior to the expiration date 
of this contract. The seller shall afford at its works reasonable facilitu - lor inspection and tests of material when 
sold and accepted subject to ii><p<»clion Inspection and acceptance at 'i ilcr's works shall t>e final. Shipiuevta to 
he made as soon after receipt of specifications as condition of seller's plant will permit. 



Qoodi to be delivered f. «. b. cars at 
consigned to 



The Seller agrees to replace material found defective for the purpose for which it is sold, when in the Imiiin of 
tbe buyer, but will not allow or pay any claims of any n,itiire wliatsoivi i ic.sulting from tbe use of such d-li -live 
material. In all cases full opportunity shall be give n for investigatiou by Msller'* representatives. Goods mni* uot 
be returned except by written permission of the seller. 

The Seller shall not be liable for non- performance of this contract in whole or in p.irt. if such nmipcifirm nice 
is the result of fires, strikes, differences with employes, casualties. d'lj>s in transportation, short.iKe o( ta^s or 
other causes beyond the Seller's reasonable control; nor shall these ext motions be litnitcd or waiv<-d by au) 'thir 
terms of this contract, whether printed or written Th** quantity of m;.'' rial shown by invoice shall id all . ascs 
govern settlements, unless notice of shortage be immediately reported lo the agent of the di-livering railroai. in 
order that the alleged shortage may be verified and unless like notice b. given to the seMer within i4 bonri sfter 
receipt of material. Claims fur other errors, deficiencica or imperfections will not be entertained by tbo teller 
unless made withio 16 days after receipt of mat«riaL 



ACCEPTED: 



ACCEPTED SUBJECT TO APPROVAL 



yiG. 15. ^ORM OF CONTRACT 



THE CONTRACT 



107 



5. 



6. 



with no binding obligation on the buyer's part 
to take any definite quantity. 

The price may be a fixed one for the whole period. 

The price may be on a sliding-scale basis, increas- 
ing or decreasing in a ratio proportionate to 
quantities taken. 

The price may be at a percentage below the cur- 
rent market when material is taken. 

In each of these instances the material mav be 
taken in one shipment or in many; if it is taken in 
one shipment the transaction could in many cases be 
effected through a regular order. What is of primary 
concern to the purchasing agent is the proper in- 
sertion in the written document of all the clauses 
necessary to cover the agreement he has made with 
the seller; he should concentrate his attention on 
these clauses before signing the contract. If inspec- 
tion is to be made at the seller's factory during the 
time of the manufacturing process, or if chemical or 
physical tests are to be made then or subsequently, 
the contract should be drawn to incorporate them. 

When a contract covers many shipments over a long 
period, the best way to deal with them is to issue for 
each shipment a regular order which shall contain a 
clause to the effect that it is on account of contract 

dated . The following up, invoice work, and other 

details are then kept in conformity with other routine 
work; these I shall discuss under that heading in a 
later chapter. 

Regular Orders.— Under what may be classed as 
i<^*gular orders are included the majority of purchases 



108 



PURCHASING AND STORING 



THE CONTRACT 



109 



for industrial purposes. In those instances in which 
failure on the part of the seller to live up to the 
agreement would involve serious consequences for the 
purchaser, it is advisable to send the order in duj)!!- 
cate, and to insist that the seller write his formal ac- 
ceptance on the face of one copy and return it to the 
purchaser. Examples of forms for these orders are 
given in Figures 16 and 17. It is essential that the 
nine cardinal points mentioned earlier in this chapter, 
as well as all other pertinent information, be embodied 
in the order. 

As previously stated, an order that is issued in ac- 
ceptance of a proposal made to the buyer serves to 
complete the contract, provided the* order does not 
deviate from the offer in any particular. An order 
which is issued by the purchaser, and which does not 
come within the last named category, is simply an 
offer to the seller; an acknowledgment is therefore 
necessary for the completion of the contract. Some 
purchasing departments issue a great many of these 
orders — it must be left to the individual cases to de- 
termine whether acknowledgments should be required, 
and, if so, when. 

Many order forms have the text of the conditions 
printed on the reverse side. In such cases it is essen- 
tial to refer in the body of the order to these condi- 
tions, in some such phrase as this: ^*This order is 
issued subject to the conditions on the back hereof.'' 
If there is no reference to these conditions within the 
space which could be considered a.s containing the 
essential facts of the order, the seller is not obligated 
to read and interpret them as part of the contract. 



All Invoices, correspondence and packages must bear this ORDER No. 



JOHN SMITH MFG. CO. 

too SIXTEENTH AVE. 
NEW YORK 



ORIGINAL 



To 



Please enter our order for 



Price. 



John Smith Mfg. Co. 



Ship Via . 
F. 0. B - 



Purchasing Agent 



We will not be responsible for goods delivered to us with out a written order. 
Please acknowledge receipt, and advise when shipment will be made 



FIG. 16. ORDER FORM 

''Rush" Orders. — Some of the expressions used in 
connection with *'rush" orders are: **The 'bete noir' 
of a purchasing department; ''A necessary evil;" 
*' There should be none." Every rush order means a 
rush price or no price at all. The barriers carefully 
f^iected against paying high prices are swept away. 
I^<'cause somebody has blundered! No, not always. 
There can be legitimate rush orders, and it is the 
^hity of the purchasing department to be prepared for 



110 



PURCHASING AND STOIUNG 



JOHN SMITH MFG. CO. 

too SIXTEENTH AVE. 
NEW YORK 



Put this Order No 
on Vour Invuict 



To. 



Please detach and return ackruMvledgment at foot 



Quantity 



Description 



Price 




Ship Via.. 
F.O.B.— 



John Smith Mfg. Co 



Purchasing Agent 



Detach and mail at once to 
JOHN SMITH MFG. CO. 
100 Sixteenth Ave. 
New York 



Order No. 
Date 



. 



Receipt of Order numbered as above is hereby acknowledged. 
We accept the order as specified 

Shipment will be made. 
Signed . 



FIG. 17. ORDER FORM, WITH ACKNOWLEDGMENT SLIP ATTACH HED 

For those orders, for which acknowledgments are essential, this is the 

surest way of getting them and brings better results than 

separate acknowledgment forms. 

tliem. This state of preparedness consists in knowing 
sources of supply and in having a thorough knowl- 
edge of prices. These phases of the subject were dis- 
cussed in the second and third chapters. 

Such orders may originate through the necessity 
that the manufacturing department produce on short 
notice some contract closed by the sales department 



THE CONTRACT 



111 



with a time limit clause. Even if there have been 
lax methods, or lack of anticipation, on the part of 
another department, still the purchasing department 
is in existence for the general good of the organiza- 
tion and should exert all its energies to do the best 
under the circumstances. If it is a case in which in- 
telligent anticipation would have obviated the rush 
order, it is certainly part of the purchasing agent's 
duties to call the matter to the attention of the proper 
authority. Buying on sane, careful principles should 
be insisted upon, and the purchaser should work for 
the elimination of all those factors that tend to nullify 
or destroy these principles. This is the purchaser's 
view of the cost situation in an industrial plant. 

* Tick-Up'* Orders. — A great deal of what has been 
said under rush orders could apply to '* pick-up" or- 
ders, but there are some other considerations also. 
There are times when a mill shipment is delayed from 
one or another of manv causes — excessive demand, 
strikes, break-down of transportation, and so on. In 
such instances it is necessary to **pick up'" from 
warehouse stock sufficient material to keep the series 
of factory operations unbroken. An advanced price 
must undoubtedly be paid, and in keeping this at a 
minimum the purchasing agent's price knowledge 
again comes into play. 

Another class of pick-up orders is in connection 
with small, picayune purchases which, taken alone, 
would be declined bv even the smallest of the dealers 
and supply houses, but which, in conjunction with 
other business, help to make a fairly respectable ac- 
count for some merchants and jobbers. 



112 



PURCHASING AND STORING 



The main evil of small pick-up orders is well illus- 
trated in a letter to a technical publication from *'A 
Victim." He relates that he received a pick-up or- 
der from a large corporation for two dozen cotter 
pins. A price of $1.50 was agreed upon when the or- 
der was telephoned. The company's order called for 
shipment to an outlying branch by parcel post. A 
copy of the invoice and of the original shipping list 
was to be mailed to the branch, and the invoice in 
quadruplicate with a copy of the shipping list was to 
be mailed to head office. 

The clerk responsible for checking the price on the 
invoice was under the impression that it was too high, 
and therefore obtained quotations from two other 
houses. Both of these quotations were lower than the 
shipper's price. Armed with this information, he 
opened fire on the dealer and after four letters had 
been written and despatched by each of the comba- 
tants, the dealer capitulated and reduced his charge 
to a figure in line with the other quotation he had re- 
ceived. 

In the case recited, perhaps several times the 
amount of the saving was spent by the purchaser in 
securing the adjustment. The remedy for such a con- 
dition lies in dealing with tried and reputable supply 
houses. A house that habitually renders invoices con- 
taining overcharges is not safe to do business with. 
The ultimate cost of purchased goods is not repre- 
sented by figures on an invoice. Possibly the example 
given is an exaggerated case, but it shows the need 
of common sense in buying small quantities as well 
as large. 



THE CONTRACT 



113 



** Covering Orders*' for Recording Purposes. — 

** Covering orders'' are necessary to enable the pur- 
chasing department to keep a record of the charges, 
and also to guarantee that invoices and bills of every 
kind will travel the same course before reaching the 
accountant. They also constitute a measure of pro- 
tection against duplication of payments, as I shall 
explain in the chapter on ** Invoices." 

These *^ covering orders" are written up and in- 
cluded in the purchasing files for the invoices to be 
recorded on them. They consist chiefly of such items 
as of electric-light bills, telephone charges, and many 
other monthly bills. Probably every purchasing de- 
partment at times receives bills for small items ob- 
tained by some person in the establishment, for which 
no formal order has been issued. Stationery and 
small items of merchandise are sometimes picked up 
in this way. These must be covered by formal orders 
for recording purposes only. 

Remedial Contract Forms.— The National Dry 
Goods Association has appointed a committee, com- 
posed of both manufacturers and jobbers, to discuss 
forms of contracts as a remedy for some of the anom- 
alies that now exist. The object is so extremely per- 
tinent to the discussion of the subject in this chapter 
that I give here the report of the proposed meeting 
which the New York Times published. 

The suggestion of such a meeting was made some weeks ago 
by E. L. Howe, Secretary of the retailers' organization, in a 
statement calling attention to the need of more definite and 
binding contracts between buyers and sellers. Mr. Howe said 
there should be a different understanding than existed be- 



114 



PURCHASING AND STORING 



tween the two parties as to the obligations imposed upon 
both by a contract for the delivery of merchandise. 

*'Our suggestion, therefore, is," he said at that time, *4bat 
immediate attention be given by both the retail and wholesale 
interests of the country to a form of contra^-t for merchandise 
orders that will place proper and binding obligations on both 
parties to it. As it stands today the retailer is bound to ac- 
ceptance of the goods if shipped within the specified time, but 
the seller slips out of his obligation as easily as he slips out of 
his coat. If the seller cannot be tied definitely in the matter, 
provisions should at least be made for notification to the 
buyer, at a reasonable time prior to the stated delivery, of the 
seller's inability to go through with the contract." 

This exposition of the buyer's side of the contract conti'o- 
versy brought a quick reply from the manufacturers, who, in 
turn, claimed to be the parties with a real grievance. Many 
instances were related of the buyer 's failure to live up to his 
contract with the seller, of his taking unjustified discounts, 
returning goods without a proper reason, cancelling orders 
given after goods had been put into work, and many other 
abuses. Many wholesalers have seen fit, during the prevalence 
of a market in favor of the seller, to correct some of tli(:;e 
evils. It was quite openly hinted that the retailers were grow- 
ing restless under the necessity of strictly observing the 
seller's terms or getting no merchandise. 

"The present tendency seems to be," he said, "entirely in 
the direction of binding the buyer and letting the seller off 
scot free. Both should be tied down specifically to the per- 
formance of certain obligations, otherwise there is no contract. 
The seller at present seems free to deliver whenever he wants 
to, and at any price he cares to ask. Take, for instance, a 
form of contract that one importer is forcing his custonnTs 
to sign. We have had copies of this contract for distribution 
among our members. Here are the terms laid down : 



THE CONTRACT 



115 



* Seller may delay or cancel all or part of deliveries in case 
of damage to mill, machinery, or stock, strike, accident, or de- 
lay in manufacture or transportation, inability to deliver or 
hindrance by reason of conditions occasioned by war or other 
circumstances beyond seller's control. 

'If conditions occasioned by change of tariff and United 
States customs regulations or decisions, or by war or political 
disturbance increase the cost of raw material or processing 
of merchandise to seller, buyer shall pay proportionate in- 
crease in price upon all merchandise to be delivered. 

'Seller may decline to make any or all deliveries, except 
for cash, and if buyer omits to pay cash for any instalment 
upon the date fixed for delivery thereof, upon the offer of the 
seller to deliver such instalment on such date for cash, then 
the seller may, at his option, cancel as to any or all instal- 
ments, or postpone deliveries until such time as buyer satisfies 
seller as to his financial responsibility, at which time seller 
may renew deliveries with such extension of time as seller may 
require by reason of postponement. 

'Partial deliveries accepted by buyer shall be paid for at 
specified price and terms. Reasonable allowance of time from 
delivery date specified shall be allowed seller. Seller makes 
no warranties surviving acceptance. If any pieces delivered 
by seller are imperfect, buyer shall, within reasonable time, 
give seller reasonable opportunity to replace such ])ieces. 

* Failure of seller as to any instalment shall not affect 
buyer's obligation as to other instalments. If buyer fails to 
accept any instalments when due, or to make any payment 
when due, or to perform any term of any contract with seller, 
seller shall at any time thereafter have the right to cancel all 
or any instalments of this contract. This paper contains the 
entire contract. There are no oral representations or warran- 
ties by seller affecting this contract.' " 

"The provisions in this contract," Mr. Howe explained- 



116 



PURCHASING AND STORING 



''show what seems to be lack of intention upon the part of the 
seller to bind himself to any definite obligation, yet at the 
same time providing that the buyer shall be held to a strict 
responsibility. Such contracts are not contracts in the strict 
sense, because they are one sided and unfair to the buyer. 
Such forms represent a condition in trade we hope to change 
as a result of the coming conference between buyers and 
sellers.** 



CHAPTER VI 



DELIVERY 



Importance of a Definite Delivery Date, — Probably 

no phase of purchasing work requires more keenness 
and close attention than that connected with delivery. 
Very few purchases are made for industrial establish- 
ments with an indeterminite delivery date. Practi- 
cally every order issued is for material or supplies re- 
quired at once, or at least at a fixed date. 

The determination of the date on which raw ma- 
terial is required, is an important factor in industrial 
economies. Eaw material is a form of wealth, and all 
wealth is in a stage of appreciation, depreciation, or 
stagnation. One of the objects of human activities in 
industrial organizations is to increase the value of the 
raw material manipulated. During transit, and while 
at rest in the stores, raw material is considered to be 
in a state of stagnation. Contemporaneously with 
these periods there may be an appreciation in intrin- 
sic value, but this is not the primary object of pur- 
chasing for industrial purposes. There may also be 
depreciation, on account of miscalculation or from 
causes beyond the control of the buyer. 

Taking the form of bulk, needing storage space, 
and being subject to loss by fire, damage and 
depreciation, an expense is naturally involved in car- 

117 



118 



PURCHASING AND STORING 



rying any stock of raw material. For this reason a 
very close approximation is necessary of tlie dat«' on 
which tlie material is required by tlie production de- 
partnieiit, and of the time that will be consumed by 
the purchasing- department in procuring it. A pur- 
chase having been made on certain calculations of 
time as one of the principal factors, it is essential to 
see that these calculations do not miscarry — other- 
wise the whole fabric of good purchasing might 
collapse. 

Co-operation Between Purchasing and Production 
Departments. — Since it is the particular province of 
the purchasing department to be well-informed on 
market conditions, it is obligatory on that department 
to keep the manufacturing department posted on all 
changes in delivery conditions. In times of stress and 
unusual demand, it is necessary to keep very close 
watch on all questions that would influence the time 
required to obtain raw materials. It may not be ex- 
actly true that there is perhaps a shortage, or that 
manufacturers cannot make shipments as promptly 
as when conditions are normal, but the transportation 
problems must also be closely studied. 

Purchasing agents sometimes achieve the imi)rob- 
able, but they cannot accomplish the impossible. They 
must be given sufficient time to obtain raw material, 
and due notice of quantities and of time of require- 
ment should be furnished by the manufacturing de- 
partment. Co-operation between the two departments 
is essential — the buyer must keep the shop acquainted 
with delivery conditions. Foresight is the great fac- 
tor in securing a supply of raw material at exactly 



DELIVERY 



119 



the right time. If it is necessary to look ahead six 
months instead of two, it must be done. The shop 
should make known its requirements at the moment 
they become known, and not wait till the moment of 
actual need. 

If these matters are not handled right, the results, 
from a purchasing point of view, are disastrous. 
Prices are shunted to one side, quality in many in- 
stances is disregarded, specifications are endowed with 
elastic traits, and substitutes of unknown calibre are 
accepted or tried out. Alt these features are the re- 
sult of lack of foresight. To the purchasing depart- 
ment is delegated the task of securing delivery, and 
the production department wants materials and sup- 
plies, not excuses for non-delivery. 

Delivery and Production Costs.— Increased manu- 
facturing costs are too frequently caused by the ad- 
ditional cost of raw material which has been bought 
in a hurry from warehouse because mill shipments 
have not arrived at the estimated time. If the pro- 
duction department has been in the habit of getting 
certain raw material in, say, six weeks from the time 
it was requisitioned, it is a distinct shock to that de- 
partment to discover suddenly that it will have to 
wait, say, ten weeks. It should, however, be no shock 
to the purchasing department that has its finger on 
the pulse of the market. 

All the principal items used in manufacturing 
should be scheduled by the purchasing department, 
and regular notification should be sent to the produc- 
tion department concerning the time required for de- 
livery. Special notice should be sent in regard to any 



120 



PURCHASING AND STORING 



radical changes in orders. This procedure enables the 
manufacturing department to specify its requirem(^nts 
and to prepare requisitions early enough to avoid 
tardy deliveries. In discussing stores problems later 
on, I shall say something more with respect to the 
quantities which should be kept on hand, and how 
these quantities are governed by market conditions. 

In some establishments in which an article is 
bought infrequently, such an article is apt to be con- 
sidered unimportant in the general scheme of deliv- 
ery. Eequisitions will be sent to tlie purchasing de- 
partment for the principal material lequired for turn- 
ing out a product, while the order for the article that 
is considered unimportant is left to be included in 
later requisitions. As a matter of fact, it may take 
longer to obtain this article than to get the other ma- 
terial, and delay in securing it will hold up the com- 
pletion of the manufacturing process. Such cases 
need to be watched carefully by the purchasing de- 
partment. 

Buying on Schedule. — ** Dependent sequence," 
which I have just described, is nowhere more costly 
in delay and inconvenience than in getting delivery 
of material and supplies, and any follow-up system 
that will bring together the various units at the right 
moment are always welcome. 

A suggestion is given in Figure 18 for a time sched- 
ule for the purchase of all materials and supplies. A 
copy of this schedule should be given to each depart- 
ment that draws requisitions. This form needs little 
explanation, but it is essential th^t each item be given 
for which there may be requisitions. No general 



DELIVERY 



121 



ARTICLE 



Time required for delivery 
if ordered from 



Warehouse 



J 



Mill 



Mm. quantity which can 
be purchased at mm. price 



Warehouse 



J 



Mill 



Special 
Features 



i 



FIG. 18. LOOSE LEAVES OR CARDS CAN BE USED, AS FOUND MOST 
CONVENIENT, FOR COMPILING THE SCHEDULE OF THE TIME RE- 
QUIRED FOR SHIPMENT. THIS SCHEDULE SHOULD BE FURNISHED 
BY THE PURCHASING DEPARTMENT TO THE PRODUCTION 
MANAGER OR OTHER PERSONS MAKING REQUISITIONS. 

titles, such as ''Hardware," ''Chemicals," and so on, 
should be used. If such a schedule is carefullv worked 
out by the purchasing department, it will serve as a 
valuable help to all those authorized to draw requi- 
sitions. If the production department maintains 
"control boards," or diagrams of their operations, 
these schedule dates should be transferred to the 
hoards or diagrams. The fixing of standard times for 
purchasing and stores-handling not only allows the 
purchasing agent time to bargain, buy, and deliver, 
hut is an important economic factor in preventing 
over-buying and over-stocking. Barring accidents 
and other unavoidable causes, it also prevents delays. 
Transfer of Ownership.-— As explained in the last 
chapter, ownership passes from the seller to the buyer 
at the delivery point named in the contract. The 



122 



PURCHASING AND STORING 



DELIVERY 



123 



seller's responsibility ceases when he lias made deliv- 
ery as stipulated, and it might be inferred that at 
this point the buyer's responsibility commences. 
This, however, is far from being the case. In fact, 
there is generally more work involved in getting de- 
livery than there is in tracing the goods from the 
delivery point to destination. 

Inasmuch as the delivery point may be hundreds of 
miles from the destination, there are two distinct 
phases of this work. The first phase consists of some 
form of following up the order, keeping track of 
progress made by the seller, bringing pressure to bear 
when necessary, and using all legitimate means to get 
the material to the place of delivery and at the time 
of delivery agreed upon. In short, it involves en- 
forcing the clause in the contract covering this point 
and securing ownership in the goods. As already 
stated, however, ownership may pass to the buyer at 
a considerable distance from the ultimate destination; 
further work is therefore necessary while the material 
is in transit. 

Traffic Work. — The second phase of the w^ork, trans- 
portation, involves a knowledge of traffic problems. 
Some large corporations are compelled to maintain 
extensive traffic departments, chiefly for the benefit of 
the sales departments, because they sell much of their 
product *'f. 0. b. destination," and therefore the re- 
sponsibility is on them to trace and follow their ship- 
ments. Some of them may have factories and ware- 
houses located at widely separated points, between 
which movements of freight are constantly taking 
place. 



In many industrial establishments, however, the 
product is sold entirely **f. o. b. point of shipment" 
and consequently there are practically no traffic prob- 
lems connected with the selling end, the only work of 
this character is connected with incoming freight. 
Therefore, in these cases it usually devolves on the 
purchasing department to take care of the work 
within its own organization. I shall discuss this 
subject more in detail in this chapter. 

Follow-Up Work. — There are innumerable schemes 
and devices in use for following up and getting de- 
livery of goods. While some of these are in general 
use and fairly well standardized, it is probably an im- 
possibility to find two systems that work on identical 
lines. The object is to get the goods, and the methods 
adopted by one concern rarely fit the conditions sur- 
rounding the work of another; some variations in de- 
tails will always be found. In the discussion of rou- 
tine work I shall outline plans for following up pur- 
chases, and these can be used as a framework on 
which to erect any structure for solving individual 
problems satisfactorily. 

The basis from which to start all follow-up work is 
the delivery date named on the order, and the great- 
est factor is the reliance that can be placed on prom- 
ises. If performances could bear an exact relation to 
promises, the problem would be greatly simplified. 
In the discussion, in Chapter III, on selecting sources 
of supply, particular emphasis was laid on this ques- 
tion of promises and performances. It is at the de- 
livery stage of purchasing that the value of selecting 
right sources is manifested. There are many manu- 



124 



PURCHASING AND STORING 



facturers who would no more* think of evading a 
promise in regard to time of delivery than they would 
think of trying to change the price on an accepted 
order. Unfortunately, however, there are also many 
who cannot withstand the allurements and induce- 
ments of booking more business than they can prop- 
erly undertake and still give their customers satis- 
factory service. 

It is just such contingencies as the last named 
against which the purchasing agent must be on his 
guard; he must formulate some scheme for getting his 
own goods shipped on time. In work of this char- 
acter, the suppliers should never be approached with 
unnecessary requests for information and other foims 
of petty annoyances; if they are, the very object 
sought will be defeated. A busy concern that is doing 
its best to satisfy customers does not want to be pes- 
tered with such things, and if they are constantly an- 
noyed they will not give proper attention to legiti- 
mate inquiries. Intelligence must be used in the pur- 
chasing department in the handling of these matters. 

In addition to the stereotyped forms which are usu- 
ally sent out, and which serve for the intended pur- 
pose up to a certain point, there should be some well- 
directed letters that will bring the desired results. 
These can be supplemented by visits to the vendor's 
warehouses and factories. It is the practice of some 
large corporations to keep men permanently on the 
road following up purchases, and ascertaining the 
progress made in getting out the product, if it k * 
manufactured one. In times of stress and unusual 
activity this course is adopted by a great many con- 



DELIVERY 



125 



Progress 
Report 


JOHN SMITH MFG. CO. 


Copies to 


lOO SIXTEENTH AVE. 
NEW YORK 








Order No. 


Date of Order 


Date Promised 


Material 


Name of Supplier 


Date of Investigation 


Place of Investigation 


Investigation made by 


Date report sent in 1 


NATURE OF REPORT 


% 












' 


^ionori 











PIG. 19. FORM FOR TRAVELING MEN TO USE IN REPORTING 

PROGRESS OF ORDERS. AS EXPLAINED IN THE TEXT, IT IS AN 

ESSENTIAL PART OF THE FOLLOW-UP SYSTEM OF MANY CONCERNS 

TO HAVE THEIR REPRESENTATIVES VISIT THE 

SELLERS' FACTORIES AND WAREHOUSES. 

cerns. At any time when great importance attaches 
to delivery of material this method should invariably 
be used, for it is undoubtedly the most effective means 
of getting the desired results. Some illustrations of 
follow-up forms are given in the chapter on *' Routine 
Work." There should also be standard forms on 
which the travelling men may make their reports, 
similar to those shown in Figures 19 and 20. 



126 



PURCHASING AND STORING 



DELIVERY 



127 



Marfp hy 

TO JOHN SMITH MFG. 


INSPECTION REPORT Copies of this report 

sent to 




rr> 


CU. 


Matprial 




Purchased from 




Drrlpr No 


Date material was 
Date of Ord«r ready for insper.tion 


Place of 
inspection 


Date of Date 
inspection sent in 




DETAIL OF INSPECTION AND TESTS 




. 








Report approved by 


Signed 


Pate of annroval 





FIG. 20. inspector's report form 

Several copies of this may have to be made, and sent to interested 

parties. 

Emergency Orders.— Every purchasing department 
at some time or another issues rush, or emergency, 
orders ; these cannot be handled by means of the regu- 
lar follow-up system. The manner in which they 
should be handled depends on the number of orders- 
some departments have to issue many more than 
others. The best plan is to have extra copies of the 
orders made, and to keep them continually in a prom- 
inent place so that they will get daily attention until 



disposed of. It is sometimes advisable to have the 
original order rubber-stamped '* Emergency ,' ' in large 
letters, and sent by special delivery. These methods 
invariably secure prompt attention for the order. 

Helps in Getting Deliveries.— The prompt return of 
cars and of all returnable containers is a factor in 
getting better delivery ; giving close attention to these 
matters will mean greater efficiency. 

Bonus and penalty clauses are sometimes inserted 
in contracts with the idea of keeping deliveries up to 
schedule, but this procedure is seldom resorted to in 
buying material and supplies. It is confined almost 
entirely to construction work and purchases in con- 
nection with such work. 

Dependable service on the part of the seller is the 
important feature of delivery. There are houses that 
can be depended upon in almost any emergency or 
contingency. Abnormal market conditions, labor dis- 
turbances, and transportation difficulties do not seem 
to disturb them, or, if they do, the concerns make 
good nevertheless. They do not throw up their hands 
and transfer the trouble to some one else. Their main 
object is to take care of their customers as they have 
agreed to do. Such service is valuable to the buyer; 
it is worth paying for. If he pays only what he 
would have had to pay another bidder he has a good 
bargain, for the other man might have cost him con- 
siderable time, effort, and expense in getting delivery. 

Some delivery promises are made by salesmen to 
secure an order without any knowledge on their part 
as to the ability of their plant to make good on the 
promises. Salesmen should be fully posted on these 



./^ 



128 



PURCHASING AND STORING 



points. They should be able to answer accurately 
and authoritatively any questions regarding delivery, 
and should be ready to give undertakings on this 



score. 



Inspection. — ^At some time and at some place all 
purchases must be inspected. This inspection may 
take many forms. The receiving clerk may make 
only a superficial examination, or he may have to 
count carefully, measure, and weigh certain materials. 
When goods are received at the consignee's factory, 
the inspection may be made independently of the re- 
ceiving clerk, and the material may be put to some 
simple tests and possibly compared with samples or 
goods delivered on previous orders. I shall treat all 
these forms of inspection, and also the receipt of ma- 
terial when the destination is the purchaser's factory 
or storeroom, in the discussion of storeskeeping, a 
subject with which they more properly belong. 

Inspection Before Shipment. — Many contracts are 
placed which contain stipulations regarding inspec- 
tion before shipment or during tlie manufacturing 
process in the seller's factory. It is usual for the 
technical staff to specify the nature of such inspec- 
tion, and to descri])e clearly the essential tests they 
wish made. It then becomes the duty of the pur<^has- 
ing department to have these specifications incorpor- 
ated in the order or contract, and to ascertain from 
the sellers when the material is ready. Since the in- 
spectors themselves may not be under the jurisdiction 
of the purchasing department, this department should 
notify the proper authority to have the inspection 
made. 



DELIVERY 



129 



Inspection reports— as illustrated in Figure 20, or 
some other suitable form— should be made out by the 
inspector in duplicate or triplicate, as required, and 
forwarded to the home office. The purchasing depart- 
ment should always get a copy, which should be filed 
with the contract papers, or else a notation of it 
should be made on the order. 

Testing Samples.— Samples for testing purposes 
may be taken from shipments on arrival at destina- 
tion, or they may be secured before shipment is made 
by the seller. Those establishments that maintain 
their own testing laboratories can furnish the results 
of these tests to the purchasing department; if this 
is not done, arrangements should be made with some 
outside concern to do this work. Both the inspection 
and the testing of any moderate-sized establishment 
can probably be done cheaper and better by one of 
the firms that specialize in this work. The purchasing 
department should buy the services of some good firm 
for such work as it requires done, and issue an order 
in the regular way. There is an advantage in having 
this work done outside, because the benefit of the 
wide experience of the inspecting firm is obtained; 
nevertheless, there is some difference of opinion on 
this score. It is contended that while a man testing 
only a few materials for the uses of one factory be- 
comes a keen specialist on these few materials, he is 
liable to become narrow as a result of this kind of 
experience. 

Need of Recognized Methods of Testing.— Some 
very large corporations maintaining extensive labora^ 
tories can enforce their own methods of testing and 



130 



PURCHASING AND STORING 



DELIVERY 



131 



I 



sampling, but undoubtedly a need exists among the 
majority of industrial establishments for a bureau for 
testing materials and supplies according to some rec- 
ognized standards. All inspection and testing should 
then be based on the standards adopted. 

Inspection is often one of the weakest points of a 
manufacturing plant's operating system. It is fre- 
quently too lax, and sometimes too rigid. Exact 
methods ought to be in universal use — then the criti- 
cisms that sometimes arise regarding unfair testing 
methods could not come up. 

The question as to whether inspection should be 
entirely under the jurisdiction of the purchasing de- 
partment, or should be controlled by the manufac- 
turing department or by a technical staff, is also de- 
batable. The purchasing department is held respon- 
sible for obtaining the quality specified, and when 
material fails to check up to the specified quality, the 
onus of enforcing the specification is thrown on the 
piirchasing department. It is contended that this de- 
partment should therefore control testing and inspec- 
tion. The point is open to argument, because the pur- 
chasing department did not originate the specification, 
neither is it the actual user of the material. 

The determination of the question will vary in in- 
dividual cases. A laboratory maintained by an in- 
dustrial establishment should, in any case, be a sep- 
arate entity. Its services should be at the call of any 
of the departments, for at some time or another any 
one of them may require such services. Inspection 
may also be dissociated in a similar way. This ar- 
rangement can be made in any establishnumt where 



there is sufficient work for one or more men. Compe- 
tent inspection of incoming goods will prevent much 
production loss; the time to determine whether or not 
the goods comply with the specifications is before, or 
at the moment of, arrival— not when they are needed 
for use, or when they are already under manipulation 

in the shop. 

Transportation Problems. — Some establishments 
have a traffic manager, whose duties are restricted to 
looking after the outgoing shipments. Under such an 
arrangement, the incoming shipments have to be 
taken care of by the purchasing department. This 
should not be the case, for the traffic manager has 
more influence with the railroads in general than the 
purchasing agent. He can get quicker action and 
demand prompter attention to his requests than a 
buyer possibly could, because he controls the routing 
on outgoing shipments to a large extent, and exerts 
by this means a tremendous leverage on the operating 
department of a railroad through its freight agent's 
office. If similar work is carried on in two depart- 
ments, there must be some duplication of work, also, 
of records, freight classifications, and other matters 
which strictly pertain to traffic problems. 

Some buyers make a practice of issuing orders bear- 
ing the instructions **Ship and trace," indicating the 
desire of the purchaser that a tracer be started the 
same day shipment is delivered to the railroad com- 
pany—in fact, before the consignment has left the 
freight yards. This practice is decreasing; it should 
be discontinued altogether. 
The railroads, undoubtedly with some justification, 



132 



PURCHASING AND STORING 



consign to the waste basket, many requests for tracers 
when the papers show that the goods have not had 
time to reach their destination. If formei-ly these 
premature tracers had any effect in expediting the 
transit of goods, they have long since lost their effiect- 
iveness. It is much better to start a wire tracer the 
day after the consignment is due to arrive at destina- 
tion. 

The railroads perform for shippers a vast amount 
of clerical work in tracing shipments, which comprises 
a very considerable item of expense in the transpor- 
tation of goods. It cannot be doubted that a large 
part of this expense could be saved the transportation 
companies by the exercise of patience on the part of 
shippers and consignees, and by confining tracer re- 
quests to those instances in which shipments have ac- 
tually gone astray or have been delayed in transit. 

Before an order is placed, careful consideration 
should be given the question whether shipment should 
be made by parcel post, express, or freight. The date 
on which goods are required will be the determining 
factor in some cases. It is, of course, expedient to 
get the material in good time, but to have it come by 
express and then be held in tlie receiving rbom or 
stores several days is an unnecessary expense, when 
the same lot could just as well have been sent by 
freight and the differences in charges could ]iave been^ 
saved. 

When reference cannot be made to an organized 
traffic department, the purchasing department must be 
in a position to check freight charges and, before 
placing orders, it should be able to verify tlie freight 



DELIVERY 



133 



rate named in the quotation of the firm that is to re- 
ceive the order. This can be done through the local 
freight agent. The purchase order should carry in- 
structions concerning the routing of the material to be 
shipped, the classification, anci the freight rate which 
is to apply. 



1 iU 

'41 



CHAPTER VII 
INVOICES 

Completion of the Purchasing Cycle.— As shown in 

Figure 1, the cycle of purchasing does not end with 
getting delivery of the material; it is incumbent on 
the purchaser to see that the seller obtains the con- 
sideration agreed upon. Owing to the departmental 
formation in establishments, tlie actual payments are 
not made by the purchasing department, but the sell- 
er's invoice is treated in such a manner as virtually 
to make it as good as cash to the seller at the agreed 
time of payment. 

This work is generally looked upon as merely com- 
paring and checking with facts already established, 
and although requiring care and methodical treatment 
it is not supposed to demand a great amount of in- 
telligence or initiative. While it is true that care 
and close application are necessary, still ther(» are 
some phases of the work which call for something 
more than mere clerical accuracy. There is no little 
opportunity for the man with broad knowledge and 
creative instinct. 

When it is remembered that there are some orders 
against which a great many invoices are rendered, 
and that every order issued is responsible for at least 
one invoice, a better realization is gained of the im- 

134 



INVOICES 



135 



portance of the work connected with invoices, and of 
the magnitude it may assume when a great many or- 
ders are issued. 

It is necessary to keep in mind the essential differ- 
ences in an invoice as it first arrives in the purchas- 
ing agent's office and when it finally passes out of the 
office. In its initial stage it is a harmless document, 
but its characteristics are so altered on its passage 
through the department as to transform it into a docu- 
ment of considerable potentiality. 

Work to be Done on Invoices. — There is no recog- 
nized standard method of handling invoices, or of 
executing the necessary work in connection with 
them. While there are certain features that must be 
adequately covered, the manner of execution is 
largely a matter for individual decision. It is well 
in any case, however, to concentrate this work as 
much as possible, for invoices, more than any other 
documents, seem liable to be misplaced and lost. 

In some concerns, invoices go first to the accounting 
department for registration and checking extensions; 
in others, only extensions are checked. Sometimes 
the accounting department checks the invoice against 
receipt of material; in some cases it never reaches 
that department until it has been fully approved in 
every particular. 

To simplify the discussion I propose to treat in- 
voices on the supposition that the purchasing depart- 
ment has the task allotted to it of verifying quality 
and delivery, checking prices and extensions, classify- 
ing charges under proper headings, and finally ap- 
proving for payment. The accounting department, 



136 



PURCHASING AND STOKING 



INVOICES 



137 



h;'i 



then, must solve the prohlem of distributing the 
amounts to the various accounts and putting the in- 
voice in shape for payment. 

Standardizing Invoices. — There has been, at times, 
considerable agitation in favor of standardizing in- 
voice forms, but the movement has not made much 
progress. If a standard size could be adopted, it 
would probably bring some advantage in filing, hand- 
ling, and vouchering; or at least, a standard width 
would help somewhat to secure these advantages. 
There does not appear to be any good reason for the 
great disparity in dimensions which now exists. Ap- 
parently there is a tendency towards uniformity, for 
the exaggerated sizes formerly used are slowly disap- 
pearing. 

Many firms send out invoice forms with their pur- 
chase orders, and insert a clause in the order to the 
effect that the goods must be l)illed on these forms. 
This is a proceeding which has been much criticized, 
and great difficulty has been experienced in getting 
vendors to use the forms. The scheme originated 
with accountants — no practical purchasing agent 
would impose such a condition. All the advantages 
in connection with these invoii»es are on the side of 
the buyer; to the seller they are a source of trouble 
and annoyance, and interfere with his accounting 
methods. Every business house is recogniz(Kl imper- 
sonally to a certain extent from its stationery, which 
has an advertising value to the house. That the buyer 
should impose a restriction curtailing this advantage 
is unfair, and unless the practice is made universal it 
will always be unpopular. 



Relation of Invoices to Purchasing.— The work con- 
nected with the invoice is the last link in the pur- 
chasing chain; it has already been emphasized, in 
previous chapters, that each phase of purchasing 
work must be maintained at a definite standard to 
secure the greatest efficiency. The negotiations lead- 
ing up to the actual placing of the order may have 
been conducted in the most able manner, and all oper- 
ations connected with obtaining the best price, qual- 
ity, delivery, and terms may have been carried 
through in a way which will secure to the buyer the 
utmost advantages ; yet all this work may be nullified 
and the benefits lost if the invoices are not dealt with 
in such a manner as to insure their being permanently 
secured. Delay in dealing with the invoice might 
cause the loss of the cash discount and, in addition, 
the loss of the indirect and contingent advantages 
that accrue from the prompt approval and payment 
of invoices. Careless checking and examination 
would involve the risk of passing the invoice with in- 
accuracies and excessive prices, with the result that 
the good work previously done would be rendeied 
valueless. 

Trade Acceptances.— No discussion of invoices 
^vould be complete without some reference to accept- 
ances. The use of these in this country is at present 
very restricted, but considerable publicity has re- 
cently been given to the matter. It is only a ques- 
tion of the custom's becoming better known to get it 
firmly established as a recognized part of our business 
system. 

This type of .credit instrument is in common use in 



<> I. 



i 



I 



; !lil 



138 



PURCHASING AND STORING 



Europe. During my experience there, trade accept- 
ances seemed to be as common as checks, and it was 
not an unusual occurrence to see invoices with ac- 
ceptances attached. Bankers in this country are as a 
unit in favor of this instrument, and it only re- 
quires education and knowledge of its use to secure 
its general adoption by all business interests. 

The form of an acceptance does not vary any more 
than the form of checks; an illustration of the word- 
ing of one is given in Figure 21. The acceptance 
should always include the statement that it is given 
to cover the purchase of goods. The method of pro- 
cedure in connection with these acceptances is some- 
what similar to that of attaching a draft to a bill of 
lading for export shipment, but there are many points 
of difference. 

The advantages in using this instrument must be 
mutual, and inducements must be offered to buyers 



I 



<s 



OQ 






> 

00 



Name of Seller 
Address 



No., 



Date. 



.Days after date pay to the order of.- 



HuM of Seller 



.Dollars 



This accpptance is given to cover value of goods received. 



Name of Buyer 



Name of Seller 



Address 



By- 



"Treasurer 



FIG. 21. FORM OF AN ACCEPTANCE. DEVELOPMENTS IN THE 
NEAR FUTURE MAY BRING THESE INTO LARGE USE. 



INVOICES 



139 



to get them to execute acceptances instead of leav- 
ing an account open. It will, no doubt, become the 
custom to make stipulations regarding acceptances 
when agreeing to the terms in closing a contract, but 
as terms are at present arranged negotiations would 
work out along some such lines as the following: 

1. When goods have been sold on the basis of 30 
days ' net, 1 per cent cash 10 days, the giving of an 
acceptance by the buyer would entitle him to 60 
days' net; or 1 per cent discount on giving a 30- 
day acceptance. 

2. Goods sold on the basis of 60 days' net, 2 per cent 
cash 10 days, would entitle the buyer, on giving 
an acceptance, to go 90 days' net; or he would re- 
receive 1 per cent discount on giving a 60-day 
acceptance. 

3. Goods sold on the basis of 90 days ' net, 2 per cent 
on the 10th prox., would entitle the buyer, on giv- 
ing an acceptance, to 120 days' net; or he would 
receive 1 per cent on giving a 90-day acceptance. 

These periods and discounts could be altered to suit 
any arrangement; even the maximum cash discount 
could be given in some cases with the maximum time, 
provided an acceptance were given by the buyer 
promptly. 

In any arrangement such as indicated for giving ac- 
ceptances there is an apparent advantage to the buyer, 
but there are also many compensating advantages for 
the seller. Business houses carry many open accounts 
that are vague and indefinite concerning the time 



fil 









140 



PURCHASING AND STORING 



INVOICES 



141 



when a settlement will be obtained. As assets, tliese 
accounts are to a certain extent intangible— at least 
the seller has nothing to show for them ex(iept an 
entry in his books; but acceptances have a definite 
value. They are, in fact, as good as cash, for any 
bank will discount them in preference to promissory 
notes, and probably at a lower rate. Moreover, they 
make a clean-cut, definite settlement between the 
buyer and seller from which there is no redress. Now 
that acceptances are coming into use, it will not be 
necessary for so many houses to carry their (custom- 
ers, and in many cases practically to finance them. 

If a concern has a large number of slow-pay (custom- 
ers, they are a big expense to the business and must 
necessarily cause an increase in the cost of goods. 
The result is that the prompt payer is penalized. The 
trade acceptance will equalize conditions, and will also 
prevent the making of unjust and unfair claims. It 
will mitigate many of the evils connected with cash 
discounts, and will bring about ))etter and easier (col- 
lections. These are only a few of the benefits that 
will be derived from the use of the acceptance. As it 
will undoubtedly come into more general use, and 
since it is closely associated with invoices, purchas- 
ing agents should make themselves acquainted with 
its uses and advantages, for the time will come when 
those buyers who are willing to give an acc(3ptance 
will be given the preference by the sellers over those 
who are not. 

Arranging Dates for Payment of Invoices.— When 
a purchasing department is receiving a large number 
of invoices from one concern every month, it can fre- 



quently arrange for specified dates on which to pay 
them. Especially is this the case if they are for small 
amounts, and at the same time secure the maximum 
cash discount. When the cash discount is for ten 
days, considerable work and bookkeeping is involved 
if checks have to be made out for practically every 
invoice. 

If the matter is taken up in the right spirit with 
the sellers, arrangements can frequently be made to 
send checks twice a month on the basis that all in- 
voices dated from the first to the fifteenth shall be 
paid on the twenty-fifth of the same month, and all 
invoices dated from the sixteenth to the last day of 
the month, on the tenth proximo. This arrangement 
gives ample time to get them approved, and effects a 
considerable saving in bookkeeping work. 

Avoiding Duplicate Payment of Invoices. — It may 
seem inconceivable to those persons unaccustomed to 
handling invoices that any establishment with an 
efficient accounting system could pay an invoice twice. 
Yet this has occurred in many business concerns, both 
large and small. Moreover the difficulty will prob- 
ably never be entirely overcome while the human ele- 
ment is a factor in invoice transactions. 

There are, however, many safeguards which can be 
erected by the purchasing department to prevent du- 
plication of payments. One of the* best methods, and 
perhaps the one most effective and most generally 
adopted, is to enter each invoice on the copy of the 
order retained in the purchasing agent's office. Any 
duplicate coming through should then be instantly de- 
tected and destroyed if the original is found to be iu 






142 



PURCHASING AND STORING 



INVOICES 



143 



III 



existence. If the original cannot be found, then to 
provide against any contingency of its turning up, 
the duplicate can be approved. It should be distinctly 
and prominently marked as a duplicate, so that the 
attention of the accounting department cannot fail to 
be attracted to its status. 

In some concerns many thousands of invoices pass 
through the purchasing department every month, and 
each one of these represents something definite to that 
department, and has a tangible connection with some 
contract or order. But when these invoices arrive 
in the accounting department, they are simply so 
many documents to be collected, tabulated, allocated, 
and vouchered, if they carry the proper authentica- 
tion and approval. It is the purchasing depjirtment 
which must absolutely see to it that no improper in- 
voice gets through. 

If it were just a question of duplicate invoices — 
that is, invoices of the same date, for the same 
amount, and for the same material — the matter would 
be simplified, because these are more easily detected. 
But there are complications. For example, two in- 
voices may be rendered for the same material l)ut, 
through some mistake, bear different dates. Also an 
order may be placed for 250 articles, with instructions 
to ship 50 by express and 200 by freight. The ex- 
press shipment is forwarded and an invoice mailed 
for 50. Probably the following day, or shortly after- 
ward, the remaining 200 are shipped by freight. This 
time, another invoice is rendered for the full quantity 
of 250. There are many other ways in which invoices 
can be made out improperly but inadvertently by the 



sellers, but these illustrations will suffice to show that 
it is entirely the province of the purchasing depart- 
ment to prevent approval of them. If they once get 
through that department they will probably be paid. 

There are other methods of preventing duplicate 
payments. I shall describe one here. The receiving 
clerk's receipt form can be attached to every invoice, 
and if a duplicate bill, or one for an excessive amount 
of material, is rendered there will be no receiving slip 
attached by which payment could be authorized. I 
shall give the details of these preventive measures in 
the chapter on **Koutine Work.'' 

Credits. — Incorrect invoices will appear in every 
purchasing department; the manner of handling them 
varies considerably. Any simple scheme that is ef- 
fective is all that is necessary. If there is too much 
red tape, it will destroy the usefulness of the plan; 
the task is merely to rectify and adjust the discrep- 
ancies. In considering this problem, it is important 
to ascertain in what manner these discrepancies arise. 
There are various ways in which invoices may be in- 
accurate. The price may be incorrect, or the exten- 
sions or footings may be wrong. Quantities in excess 
of order may be shipped or billed, or the material 
may not pass the specified tests for quality. Invoices 
that fall into these classes accumulate with amazing 
rapidity in large offices, and some effective method 
must be devised for disposing of them. 

Some concerns hold all such bills until a credit or 
a corrected invoice is received. This course is open 
to many objections. Sellers are generally very slow 
in investigating such matters, and the buyer may 



144 



PURCHASING AND STORING 



write half a dozen letters before getting any satisfac- 
tion. Accordingly, so much time may elapse that it 
will be difficult for either side to produce tangible 
proofs to support or controvert the claim, as the case 
may be. Such delay causes further complications irx 
connection with cash discounts, for the buyer often 
claims that he is entitled to the discount whenever the 
bill is paid, if the mistake in it is the fault of the 
seller. The seller, on his part, is unwilling to allow 
this contention. Evidently, it is imperative to dis- 
pose of all inaccurate invoices in the shortest i)ossible 
time, not only to expedite the work in the buyer's 
accounting department, but in order to prevent the 
necessity of the large amount of work which will arise 
in connection with them if they are held indefinitely. 
The scheme which has been found most satisfactory, 
and which I would here suggest, is the one according 
to which the buyer makes out debits against the 
seller. The forms to be used will be found in the 
chapter on ** Routine Work.'' Even when this plan 
is used, some invoices must be held for adjustment, 
because some discrepancies are always open to argu- 
ment, and the purchasing department must be abso- 
lutelv and positively certain, in making a debit, that 
it is V^stified. If it is not, then the debit will not be 
accepted by the seller, and the whole matter will be 
hung up again. When a doubt exists, caution must 
be exercised— the seller should be given an oppor- 
tunitv to explain his view of the matter. T}xe whole 
subject of deductions from invoices and allowances 
upon them, is a source of much trouble and annoy- 
ance, but the problem can be greatly simplified if 



INVOICES 



145 



judgment, discretion, and dispatch are all employed. 
Meaning of **Net Cash.''— The term ''net cash" is 
a somewhat ambiguous expression because no inter- 
pretation that has universal acceptance can be placed 
on it. A majority of the invoices received in a pur- 
chasing department are issued in accordance with 
terms specifically agreed upon and stated on the or- 
der, but there are a great many that are received for 
goods ordered verbally without a definite understand- 
ing as to terms. Frequently these are marked ''Net 
Cash." 

This expression is interpreted by some to mean 
that payment is to be made in thirty days, and by 
others that payment should be made on delivery. 
Again, some distinguish between "Spot Cash" and 
"Net Cash;" they take the former to mean that pay- 
ment must be made as soon as an invoice is received, 
and the latter to imply that payment must be made 
as soon as delivery is effected and the recipient has 
had time to check and examine the goods and invoice. 

What does the firm mean that is responsible for 
putting this term on a billhead? Can it be shown 
that sellers attach any significance to the literal term 
"Net Cash"? My own experience leads me to believe 
that it should be interpreted as meaning that no cash 
discount will be allowed under any circumstances, and 
that the invoice must be paid at the expiration of the 
usual net time allowed by the established custom of 
the trade for the particular article, material, or com- 
modity represented by the invoice. 

Freight Charges. — Transportation problems were re- 
ferred to in the last chapter, but the question of 



, , 1 



146 



PURCHASING AND STORING 



1 1 



checking and approving freight charges remains still 
to be considered. If a traffic department is main- 
tained by the establishment, then it is the duty of 
that department to check and approve all transporta- 
tion charges. If this is not done by the traffic depart- 
ment, the purchasing department must do the work. 

Some member of the purchasing department should 
have sufficient experience in traffic problems to han- 
dle these matters intelligently. If there is sufficient 
volume of work, it may take all the time of one man, 
or even of several men. In any case, there should be 
a special routine for taking care of it. I shall out- 
line this procedure in a simple manner in the discus- 
sion of routine work. If the amount of work justifies 
a complicated or extensive system, it would be 
handled by a department organized especially to do it. 

There is considerable difference of opinion concern- 
ing the relation of freight charges to cash discounts. 
It is contended by many buyers that when an order 
has been placed **f. o. b. point of shipment," with 
freight allowed to destination, the cash discount 
should be deducted first and tlie freight afterwards. 
Others, however, are of the opinion that the freight 
should be deducted first, and the cash discount should 
be taken on the net amount only. This is a debatable 
point, and no legal decision seems ever to have been 
given on it. When the freight charge is small, the 
question is not of great moment. But there are 
many cases in which the freight item is large; the 
point then at once becomes more important. 

When material is purchased '*f. o. b. destination,'' 
the buyer does not deduct an amount equivalent to 



INVOICES 



147 



the freight charges before deducting the cash dis- 
count, since he is not interested in the transportation 
cost. The seller agrees actually to deliver the goods 
to the buyer, and must pay freight charges and as- 
sume risks of ownership until they are delivered. 

It is my opinion that when goods are bought 
*'f. o. b. point of shipment," with a partial freight al- 
lowance or full freight allowance to destination, in 
making settlement the freight should be deducted 
first, and the cash discount subsequently. The reason 
is that the freight allowance is in the same category 
as any other allowance, deduction, or even trade dis- 
count. All of these would be first deducted, and the 
net amount of invoice would then be subject to the 
agreed cash discount. 

Invoices Without Previous Price Arrangement.— 
There are always some orders placed on which no 
price is mentioned. The invoices received against 
these orders need careful scrutiny; the responsibility 
for securing a fair price devolves upon the person 
doing the work. It is therefore necessary for him to 
have a complete price index. A form for this purpose 
is shown in Figure 22. It may be possible, in allo- 
cating and arranging the work of the department, to 
have one comprehensive and complete price record 
to which reference can be made by all interested em- 
ployees. Figure 14, in Chapter IV, illustrates one 
method of recording prices. This is intended more 
particularly for the use of the price clerk; in those 
instances in which it is essential to keep quotations 
and general prices distinct from invoice prices, sep- 
arate records must be kept. 



lit 



148 



PURCHASING AND STORING 



MATERIAL 














Date 


Price 


F.O.B. 


In Quantities 
of 


Seller 


How 
obtained 


• 


■ 






• 





FIG. 22. A COMPLETE RECORD OF PRICES MUST BE KE^T BY THE 

INVOICE CLERK. ALL CONTRACT PRICES AND PRICES TAKEN FROM 

INVOICES SHOULD BE RECORDED, AND THE LAST COLUMN 

SHOULD STATE FROM WHAT SOURCE THEY WERE OBTAINED. 

Orders issued without price are usually emergency 
and **rus}i" orders. If there is no understanding to 
the contrary, the general assumption is that the goods 
will be billed at the prevailing market price. There 
are always some firms that are ready to take advan- 
tage of one's necessities. The best protection is to 
avoid such concerns. But since this cannot always 
be done, the invoice clerk must hold them to ** strict 
accountability" for any excesses in price. 

A complete compendium of prices must be compiled 



INVOICES 



149 



and kept up to date. All trade discounts and customs 
must be noted, and a record must be made of all 
changes in trade discounts and methods of figuring. 
It is becoming more common to quote base prices for 
many materials, with extras for various sizes, weights, 
or quantities, and additional extras for quality, style, 
or finish. It is no small accomplishment to become 
thoroughly familiar with, and well-versed in, all of 
these items. While some of them are simple, others 
are quite complicated. The task is perhaps simple 
enough for the sellers, since they have only to become 
acquainted with their own particular price list, but 
the purchasing department that buys many hundreds, 
and perhaps thousands, of articles must keep a rec- 
ord easy of reference and simple in exposition. Fig- 
ures 23 to 26 illustrate a method that may be em- 
ployed for this purpose. 

The Buyer^s Obligation.— Generally speaking, it 
seems to be ** human nature" for a person to make 
more strenuous efforts to get obligations due him sat- 
isfactorily settled, than to settle his own obligations. 
There is nothing that will injure purchasing more 
than the neglect of invoices or the careless and ill- 
considered treatment of them. If petty and trifling 
matters are made to look momentous and important; 
if attempts are made to enforce unfair claims; if un- 
just deductions are made; if cash discounts are 
abused; or if payment is delayed for some trivial rea- 
son—the buyer will sooner or later feel the effects of 
such a policy. 

Loss of prestige is one of the greatest deterrents 
to good purchasing, and a buyer will certainly lose 




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154 



PURCHASING AND STORING 



prestige if he adopts any of the methods just men- 
tioned. It is in connection with invoices that the 
buyer's principal obligations exist. He should there- 
fore use all diligence to get his invoices approved 
promptly. When differences of opinion do arise, he 
should handle them in a broad-minded, capable man- 
ner and, while insisting on a just and proper settle- 
ment, he should conduct negotiations without friction 
or bad feeling. This policy will have a most beneficial 
effect, and even if it is necessary for the buyer at 
some time to make some slight concession he will 
probably gain far more than he loses, when making 
additional purchases. 

Invoices and Cash Discounts.— An understanding 
must be arrived at with the financial department in 
regard to the time required for it to do its part in 
paying an invoice, and it is then up to the purchasing 
department to get the invoices through to the finan- 
cial department in ample time. When this has been 
accomplished, the purchasing department has done its 
part in fulfilling its obligation. 

The trouble over cash discounts and the abuse of 
them, is rarely the fault of the purchasing depart- 
ment. The understanding with the seller is usually 
quite clear, and claims are very seldom raised in con- 
nection with cash discounts by the purchasing depart- 
ment. The financial department is more frequently at 
fault in this respect. In some cases it may be lack of 
adequate finances which causes that department to 
withhold payment for a few days; but more often 
it is because the financial organization does not fully 
recognize the importance of living up to contract 



INVOICES 



155 



terms. The agreement as to the discount is part of 
the original contract, and no purchasing agent worthy 
of the name would for one moment think of attempt- 
ing to evade contract obligations — for this is what 
the abuse of cash discounts means. 

Other departments, however, not so directly and in- 
timately in contact with sellers look on these obliga- 
tions with some laxity. The production department 
will sometimes want to postpone or change delivery 
dates, and regard such procedure very lightly, 
whereas it really may involve serious consequences 
for the seller. Likewise the financial department may 
look with indifference on a delay of a few^ days in 
making a payment. It is the purchasing department 
which has to stand between these departments and 
the seller and bear the brunt of any blame which may 
result. Such incidents are not conducive to good buy- 
ing, in view of their effect on the standing which the 
purchasing agent holds with the sellers. 

It may be asked why the sellers themselves submit 
to the abuse of cash discounts. Some of them do 
not; they will promptly return any checks that do 
not arrive on time. Nevertheless, it is safe to say 
that the majority of them do acquiesce in these trans- 
gressions — some because they need the money, and 
others because they think a refusal would imperil 
their relations with the buyer. 

Sometimes a buyer will make the excuse that the 
goods did not reach him within ten days, and that 
he is therefore entitled to examine them before pay- 
ing. The buyer knows that delivery dates are uncer- 
tain when the time required for transportation cannot 






156 



PURCHASING AND STORING 



m 



always oe definitely gauged. He knows this when 
he makes the contract, and he also knows that it 
may mean paying the invoice before the goods are 
received. If such an arrangement is not satisfactory 
to him, then he should not make a contract on this 
basis. He should certainly not do so if he doubts 
the probity of the seller to such an extent that he 
feels he could not get a proper adjustment on a sub- 
sequent payment if there should be any discrepancies. 
Each party should observe the provisions of the 
contract; otherwise confidence is impaired and sus- 
picion is generated. The purchasing agent who ex- 
periences serious and unaccountable delays in the 
receipt of goods may oftentimes trace the trouble 
to slackness in financial settlements, resulting in pref- 
erences being given to the concerns that pay most 
promptly. 

It is an undoubted fact that the cash discount priv- 
ilege is gradually being curtailed, but its complete 
abolishment is still a long way off. Probably among 
the causes for this curtailment the most prominent is 
the abuse of the privilege by the buyer and the re- 
sultant controversies with the seller, with tin* result 
that the latter is left with a large numfeer of unbal- 
anced accounts. 



CHAPTER VIII 
THE PUKCHASING AGENT 

Responsibility. — One man is not always wholly re- 
sponsible for the determination of all the factors con- 
nected with purchasing for an industrial establish- 
ment. Questions regarding quality and quantity may 
be determined by the engineer or by the man in 
charge of production, but the responsibility does rest 
much more on one man than on another. The devel- 
opments in the art of purchasing have increased its 
importance and influence as a business function, and 
have brought more into prominence the men in charge 
of the work. They now hold a position of distinction 
and consequence in commercial undertakings. 

There are several titles in use for the men in charge 
of purchasing. Manager of Purchases, Director of 
Purchases, and other forms are used to designate the 
head of the department, but the title most generally 
adopted is Purchasing Agent. In connection with this 
man's work the following is quoted from an address 
delivered by W. G. Besler, President of the Central 
Railroad of New Jersey, at a meeting of the National 
Association of Purchasing Agents. 

Have we taken sufficient account of the potentialities of the 
purchasing agent? Has he been sufficiently recognized as a 
factor in our daily conferences, and do we appreciate him at 

157 



158 



PURCHASING AND STORING 



THE PURCHASING AGENT 



159 



his full worth and give him a standing commensurate with 
that to which he is entitled? I am afraid that some do not 
place a sufficiently high standard upon the position of the 
purchasing agent. At least, I have found instances which 
justify the thought that he is considered a sort of necessary 
nuisance who will attend to the filling of requisitions and the 
purchasing of material which other departments direct; and 
he has been regarded more in the light of an amplified clerk 
than an officer of the company, with executive ability and a 
keen insight into the affairs of the concern. A man who is 
big enough to be entrusted with the expenditure of vast «ums 
amounting to hundreds of thousands of dollars, is also big 
enough to be taken into the councils of the executives. 

Qualifications. — Great progress has been made in 
purchasing during recent years. In view of this fact, 
it is unfortunate that while the character and type 
of some purchasing agents have necessarily made 
their positions ones of recognized importance and au- 
thority, there have been too many who wer(^ simply 
** order-placers.'' These conditions are fast changing, 
however, and to-day there is no reason why a man 
should be holding the title of purchasing agent whose 
duties merely consist in keeping records of purchases, 
orders issued, goods received, and invoices checked. 
In industrial organizations there is ample scope, be- 
yond the mere clerical features connected with the 
work, for the activities of the man in charge of pur- 
chasing. To develop the purchasing function and 
maintain it at its highest plane of usefulness, it is 
necessary to have a man with certain qualifications. 

This man, first of all, should have good judgment, 
and should be well-balanced, shrewd, sagacious, and 
well-fortified with the particular knowledge essential 
in his work. He should also have an appreciation of 



values. This does not mean simply a knowledge of 
prices — a knowledge of values is of far more con- 
sequence and importance, and implies a vast fund of 
information for their accurate determination. He 
must have a broad viewpoint. He should always 
posses^ executive ability; modern purchasing requires 
a purchasing agent who can deal with the executives 
of an organization more or less on their own level. 
He should be able to make others recognize the true 
importance of his position, and he should be capable 
of carrying on his w^ork in its relation to the various 
functions of the industrial organization. 

The purchasing agent should by all means be ana- 
lytical. The analysis of values is a primary factor in 
good purchasing. He should have the ability and the 
knack of analyzing information regarding values un- 
til he has brought to light every pertinent fact and 
exhausted every possible means of securing further 
knowledge from the available records. This require- 
ment is probably the main reason why we hear so 
much today of purchasing engineers — not because of 
their engineering education particularly, but because 
they have been trained, as a rule, to analyze to the 
minutest details. 

Coupled with the power of analysis the purchasing 
agent should have a talent for comparison, because 
through comparison he obtains to a large extent his 
true estimate of values. 

He should be aggressive, because it is often neces- 
sary for him to impress his views not only on all the 
units of the organization, but on sellers as well. He 
should be progressive, and should have considerable 






Ml 



160 



PURCHASING AND STORING 



THE PURCHASING AGENT 



161 



f 



initiative and originality, inasnmcli as a great many 
of the facts he presents should come from him un- 
solicited. 

He should be resourceful, for he may often be re- 
quired to prove certain data and facts different from, 
or in addition to, his regularly recorded information, 
and unless he is awake to every opportunity he may 
not know from what sources to secure it, or, knowing 
these, may not know how to procure it. 

He should have imagination, in order that he may 
visualize and intelligently undt'rstand the conditions 
which are portrayed and represented by the avenues 
of information on business conditions which are avail- 
able for everyday reference. 

Breadth and Vision. — It must be admitted that 
many purchasing agents in industrial establishments 
have not the status which the importance of their 
work warrants. The explanation is that those pur- 
chasing agents who have not received this full recog- 
nition are lacking in breadth and vision. Large ques- 
tions come for them to answer, yet they cjumot see 
beyond their daily routine work. 

This lack of breadth means that when some really 
important matter comes up such a purchasing agent 
has to report to some executive, who may take the 
matter out of his hands. The purchasing agent needs 
a viewpoint, an outlook, which shall embrace the 
whole organization, its mission, and its destiny. If 
he has this, he will not become narrow — and narrow- 
ness is probably the prevailing fault of present-day 
purchasing agents. It is perhaps unfair, however, to 
single out purchasing agents and stigmatize them 



with this fault, because it is common to many other 
men who specialize in a single business function. 

Like all specialists, the purchasing agent is apt to 
confine himself too closely to his own particular work. 
He will follow prices closely, keep in touch with sup- 
ply sources, get deliveries promptly, and constantly 
strive to perfect himself in all those things which 
make for skillful buying and the reputation of his 
department. But in doing this he may overlook the 
broad policy of the establishment, with which his 
work should be in accord. He is apt to sacrifice qual- 
ity for price; he may overlook the importance of 
having every department working in harmony with 
the others; he may not see the value of price in its 
true proportion. 

Why do salesmen often try to get a hearing with 
an executive, **over the head'' of the purchasing 
agent, especially if they have goods of merit to offer? 
They realize that they will receive broader treatment, 
that the executive will give due consideration to all 
sides of the question, and will view price, quantity, 
delivery, service, and so on, in their true perspective. 
But a salesman will never go beyond the purchasing 
agent's office if he meets there the man who can 
weigh all these points judicially and fairly, and give 
good judgment on the facts presented and on the 
knowledge he has of the general policy, aims, and 
ambitions of the concern. 

Vendors and their salesmen and representatives are 
quite often quicker to sense the general policy of the 
houses to which they sell than the men actually doing 
the buying; or, if this is not the case, they sometimes 



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THE PURCHASING AGENT 



163 






I 



have a viewpoint which covers a larger range of vi- 
sion than that of the buyer. It is essential, therefore, 
that they be given a hearing, and that their state- 
ments be weighed and calibrated. Granted that many 
times suggestions and propositions which they make 
are not worthy of consideration, nevertheless in the 
long run, taking the good with the bad, the purchas- 
ing agent is the gainer. 

Finance and the Buyer.— The average business man 
is apt to spurn information on things financial as im- 
practical theory, but a purchasing agent should be 
financially weather-wise. For the successful buyer no 
information is too slight to be disregarded, and in- 
formation regarding financial affairs is particularly 
applicable to purchasing. 

Many materials are stable in price, irrespective of 
financial conditions. But there are also many for 
which there is a sensitively fluctuating market, and 
these will be distinctly affected by changing financial 
conditions. There is certain information from which 
can be deduced a principle for general application for 
such material. 

If a purchasing agent knows during what periods 
of the year there is a large demand for money, and 
during what periods the demand is slight, he has par- 
tially solved the question as to what time of year, 
under normal conditions, it is wise to buy or sell. 

The causes affecting the level of prices of sensi- 
tively fluctuating materials are not simple. Some of 
these causes — of which one is the supply of money — 
recur regularly, though the intensity of their effect 
is variable. The forehanded buyer will seek to recog- 



nize these causes, to judge their intensity, and finally 
to learn to modify his conclusions concerning their 
abnormal occurrences in times of great business ac- 
tivity, as during wars or when there are rumors of 
war. 

Management and Administration.— The purchasing 
agent should understand both of these terms, because 
he must both manage the purchasing and his depart- 
ment, and administer the policies of the organization, 
in so far as they affect his work and also the minor 
policies of his department. Management is a think- 
ing job and lays down general policies, while admin- 
istration accepts these policies as orders and trans- 
lates them into specific action. 

The organization and management of a purchasing 
department call for very much the same qualities as 
the organization and management of a business. 
Many business men seek success in management 
through methods and systems, or by means of what 
is called efficiency, or scientific management. These 
compel the mind to revert to some perfectly modeled 
plans or processes which are supposed to straighten 
out, as by magic, all kinks, worries and troubles. 

Thinking business men know better, and have long 
since abandoned the hope that mere methods and 
systems will of themselves accomplish anything, but 
they do know that scientific organization, intelligent 
analysis, and constructive thought will lead to greatly 
improved conditions if accompanied by something 
more than mere mechanical processes and changes. 
In other words, there must be vision and purpose, 
high ideals, loyalty, and service. 



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THE PURCHASING AGENT 



165 



The purchasing agent must be the guide and in- 
spiration of his department and must assist in the 
formulation of the purchasing policies. If he is *a 
man of vision, a man who is broad enough to forecast 
and visualize possibilities; if the commanding figure 
is thoroughly imbued with ideals of business of the 
highest type; and if he makes purposeful (efforts to 
put them into effect— then a purpose of similar char- 
acter will permeate his assistants, and the smaller 
matters of detail — installing systems and methods — 
will become simply matters of form. 

Psychology in Purchasing.— Buyers and salesmen 
are diametrically opposed in a commercial sense. There 
must be some expression of this opposition, and the 
manner of the expression will be governed largely by 
the intelligence of the individual, particularly in the 
outward impression conveyed. Nobody can commend 
antagonism which can never do any good and may do 
much harm. On the contrary, a display of good feel- 
ing, even if it is fictitious, can do no harm even if 
it may do no good. The purchasing agent and the 
seller serve conflicting interests and are continually 
at war, but their feeling toward each other may be of 
the most cordial type, and based on the friendliest 
relations. The motives of sellers are never altruistic, 
however much they may so claim. It is well to re- 
member that all sales are made for profit. 

A salesman desires to produce an effect. What is 
the basic cause of it f The buyer *s psychology will com- 
pel him to search for the cause. If the explanation is 
that the salesman wishes to convey the impression 
that his product has the same qualities as those of 



his competitor — or better qualities — and yet is 
cheaper, the purchasing agent has to decide whether 
his statement is authentic, or whether it is made as 
an inducement because of the type of man the seller 
is dealing with. An easily influenced mind would 
yield to a well-directed verbal attack, but the intelli- 
gent person will investigate the reason why the state- 
ment was made. Such an analytical investigation 
may sometimes reveal extreme inconsistencies in what 
the seller says. 

Reducing the Cost of Salesmanship. — A concern 
that spends a large amount of money in investigating, 
testing, and developing the materials for use in pro- 
duction work, until it has procured the raw material 
exactly suited to its requirements, does this for many 
reasons. One of the principal reasons is that the 
firm wishes to obviate the necessity of the seller's 
making such tests for the buyer, with their attendant 
uncertainties. Moreover, the concern realizes that all 
work of this nature done by the seller increases the 
cost of the material for the buyer. 

The purchasing agent plays an important part in 
this development work. The greater his knowledge of 
his purchases, the less need is there for expensive 
salesmanship. Many buyers are paying for a sales- 
manship service that they do not need. A readjust- 
ment must come with the higher education of the pur- 
chasing agent, and also in those cases where the tech- 
nical experts in his own organization have fully sat- 
isfied themselves of the merits and desirability of cer- 
tain materials and articles. The readjustment may be 
slower in some industries than in others, but indus- 



!r! 



166 



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THE PURCHASING AGENT 



167 



trial organizations generally should be in the lead in 
this development. 

There should be some concessions to those concerns 
that employ engineering talent in order to determine 
in an accurate, scientific way the merits of anything 
they propose to buy. In other words, the buying con- 
cern — through the talent of its purchasing agent, or 
through its technical staff, or both— prefers to pay 
the cost of this determination and to arrive at the re- 
sult by scientific means under its own control. 

Technical Information. — A technical education is 
naturally a great advantage for a purchasing agent 
of an industrial establishment, but if this is secured 
by sacrificing other forms of education equally essen- 
tial, or more so, to a successful buyer, then nothing 
is gained by it. There are many engineers, architects, 
and professional men whose technical training and 
ability enable them to take first rank in their respec- 
tive professions, but whose commercial success is 
negligible, simply because they have no talent in that 
particular direction. The lawyers who amass large 
fortunes are not those who can best expound knotty 
legal problems, but those who can comprehtrnd and 
grasp the commercial and financial problems of large 
corporations, or similar problems in the administra- 
tion of large estates and trusts. 

A new title is creeping into existence — the ** pur- 
chasing engineer." There are probably a great many 
who should bear the title, but who are still disguised 
as buyers or purchasing agents. Such men are inval- 
uable if they have broad experience as ex(^cutives, 
if their commercial education is of the kind that can 



meet all contingencies, and if their technical knowl- 
edge of their own particular purchases is comprehen- 
sive and practical. There are sales engineers galore. 
It is now considered an essential part of a sales- 
man's equipment to be technically trained. But quite 
frequently these men need technical education only in 
one line, whereas a purchasing agent needs a much 
broader training, for he has to buy a multitude of 
things, even if his concern manufactures a limited 
number of articles. 

It may not be the province of the purchasing agent 
to determine technical questions, or even to select 
quality, but if he can do so, or give valuable assist- 
ance to those who do, he is to that extent more val- 
uable to his concern and of great assistance in its 
economical developments and operations. 

Policy. — The policy of the purchasing agent will 
naturally be the same as, or similar to, that of the es- 
tablishment with which he is associated, but there are 
minor policies connected with his work and his de- 
partment which every purchasing agent can formu- 
late for himself. If he finds that these conflict with 
the general policy of the organization, he can bring 
them to the attention of the proper executives, and 
if his policies are big and broad enough, and worthy 
of being adopted, they will probably find a ready ac- 
ceptance. They will also serve to enhance the repu- 
tation and standing of the author of them, for all 
organizations are looking for men who can formulate 
policies of this character. 

Since the purchasing agent's department exists to 
supply the material needs of the other departments 



I 



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THE PURCHASING AGENT 



169 



i\ 



pmi'f 



of an organization, it is essential that he cultivate 
cordial relations with other dei)artment heads. It' he 
does so, the many petty differences and frictions that 
are apt to arise between inter-department employees, 
can be controlled and smoothed out before they de- 
velop situations which could in the least impair the 
efficiency of any department. 

Friendly relations should be established with all 
those concerns with which orders are placed and with 
which negotiations are conducted. Men will often do 
for friendship what they will not do for financial 
gain. A policy of recognized merit adopted and main- 
tained as a standard with every concern the purchas- 
ing agent comes in contact with, will secure valuable 
and permanent advantages in all his transactions 
with them. 

Authority. — There should be a clear definition of 
the purchasing agent's authority. He is virtually in 
control of a situation in which he can obligate his 
concern for very large amounts, for he can sign con- 
tracts and orders involving large expenditures. In 
this respect he can be compared, to a certain extent, 
with the treasurer. Would any concern permit its 
treasurer to sign checks and other obligations with- 
out proper voucher certificates or other accredited 
authorization ? 

In the first place, no purchase should ever be made 
without a requisition. This is the purchasing agent's 
authorization. These requisitions must be proi)erly 
drawn, and signed by department heads or other per- 
sons empowered and designated by the proper officials 
to do so. 



With these documents in his office, duly authenti- 
cated, a purchasing agent could — but no real pur- 
chasing agent would — throw aside all responsibility. 
The man who is alive to the necessities of the con- 
cern, who has its interests at heart and takes pride 
in administering the purchasing function, will scruti- 
nize requisitions as much for under-buying as for 
over-buying. Market conditions are an important fac- 
tor in determining the quantity to buy, and it may be 
necessary to make recommendations on this point to 
the party who signed the requisition. 

When large expenditures have to be made for ma- 
chinery and equipment, it would probably be neces- 
sary to get an authorization from the directors. If 
exceptionally large purchases have to be made for the 
execution of a contract into which the concern has 
entered, it may be necessary to consult with the sales 
manager and with the man in charge of the finances. 
Some definite scheme should be outlined, and a plan 
should be laid out by every establishment, governing 
the purchasing agent's authority. It is not wise, how- 
ever able a man may be, to throw the onus of respon- 
sibility on him, neither is it wise to place it with some 
irresponsible foreman. 

Natural Aptitude. — Neither intuition, nor natural 
aptitude, nor the ** buying instinct," will of itself 
alone develop a successful buyer for an industrial es- 
tablishment. Different degrees of capability exist in 
different persons. The proper qualifications are 
largely acquired by association with the work of buy- 
ing, but scientific methods and research work are nec- 
essary. Successful purchasing agents do not rely on 



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171 



inherent knowledge, but upon that which is acquired. 
The tinal decision made by credit men in some cases 
is largely based on instinct or intuition. It is true 
that purchasing agents often close a deal satisfac- 
torily on this basis, but they depend mainly on 
scientifically acquired knowledge. And it must be re- 
membered that there is no finality to this work. It 
has been aptly said that ** acquired knowledge is only 
elementary compared with the vast fund of informa- 
tion which is yet undiscovered.'* 

From what has already been stated — in Chapter II, 
on ** Specifications" — it might seem that the purchas- 
ing agent is so restricted in respect to what he shall 
buy that nothing is left to his imagination and very 
little to his judgment. To be sure, in the cas(i of cer- 
tain material the purchasing agent's work is princi- 
pally a matter of specializing on price and delivery, 
since the question of what to buy has been prede- 
termined by exhaustive practical experiments, the re- 
sults of which are contained in the standard specifica- 
tions furnished to him, which he uses in canvassing 
the market and placing his orders. It must not be 
inferred, however, that his work is merely clerical, 
for it is necessary for him to know something of the 
material that he is buying, and of the antecedent 
manufaieturing processes through which it has passed. 

If the purchasing agent's work were strictly con- 
fined within these limits, his outlook would be de- 
cidedly curtailed, but an interesting and important 
field of work would still be left him. However, there 
is no reason why his activities should be r(istricted 
within such limitations. 



Wider Field for the Purchasing Agent.— I have em- 
phasized in previous chapters the fact that the pur- 
chasing agent should be the final arbiter in the con- 
duct and conclusion of all negotiations regarding 
price, terms, and delivery of all material for which 
he has requisitions. If he is a man who has a broad 
conception of his nob, there is a larger field for him. 
For example, he may be consulted in regard to capital 
outlays. In this connection his knowledge of prevail- 
ing financial conditions, the causes which have brought 
these conditions about, and the probable future ten- 
dency, will be of service. And this knowledge is val- 
uable in arriving at a decision as to the advisability, 
the manner, and the most opportune time to make an 
investment, whether it is in additional real estate, a 
new building, or better facilities for carrying on the 
undertaking. 

So a very wide area of research work opens up for 
the purchasing agent, and there is unlimited scope 
for the acquirement of knowledge useful in his sphere 
of endeavor. Getting prices and information on ma- 
terials needed, or known to be in immediate prospect, 
is only part of the work of the purchasing agent who 
keeps abreast of the times. He should be constantly 
absorbing information that will protect him against 
emergencies and ripen his judgment in the larger mat- 
ters he rnay be called upon to decide. 

A purchasing agent is employed to save money. He 
accomplishes savings through his knowledge of ma- 
terials and markets, coupled with the ability to dis- 
cover and select sources that can most advantageously 
furnish the requirements of the business. 



I •! 



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PURCHASING AND STORING 



^ There is an inherent satisfaction in bringing nego- 
tiations to a successful conclusion and closing a pur- 
chasing transaction satisfactorily. The work is inter- 
esting, and the interest is heiglitened by the breadth 
of the field it opens up for research work and the 
constant changes that take place in all classes of 
goods. Owing to the complexity of manufacturing 
industries, the finished product of one manufacturer 
IS the raw material for another. 



CHAPTER IX 
THE PURCHASING DEPARTMENT 

Origin and Mission.— There is no manufacturing 
process so simple that it does not require for the 
production work of its factory certain raw materials, 
and usually a large variety of tools and supplies. 
Other supplies and articles are needed by every sec- 
tion of an establishment, and it has long since been 
recognized that the responsibility for procuring them 
should be centralized. The organization of business 
concerns into departmental formation demanded that 
the buying function should be recognized—therefore 
the purchasing department was created. 

The segregation of purchasing has important eco- 
nomic advantages. It has been found that a depart- 
ment specializing on market conditions, price, quality, 
service, and delivery, can obtain better results than 
can be secured through the division and decentrali- 
zation of the work. Such an arrangement, moreover, 
enables all other departments of an establishment to 
devote their whole time to their special functions and 
activities. 

All the material needs of an establishment should 
be obtained through the purchasing department. No 
exception of any kind should be made. Everything in 
the way of equipment, tools, supplies of all kinds— in- 

173 



fl«i 



11 



174 



PURCHASING AND STORING 



PURCHASING DEPARTMENT 



175 



eluding coal, oils, stationery, printing and so on— is 
included under **material needs.'' The practice of 
some executives, of permitting some of the minor 
supplies to be purchased by the departments using 
them is too common and cannot be commended. The 
principal purchasing work in industrial establish- 
ments is, of course, connected with procuring the ar- 
ticles, goods, and commodities which actuall)- consti- 
tute the raw material for production work, oi- which, 
at least, are spoken of as such. It is essential that 
all supplies should pass through the department; oth- 
erwise standardization cannot be maintained. 

Standardizing Supplies.— It may be noticed that 
those concerns which have been in existence for some 
time, and which have permitted the purchase of sup- 
plies through individuals in different departments 
have a promiscuous assortment and a bewildering ar- 
ray of articles. Standardization of all office equip- 
ment, stationery, and all supplies used through the 
factory can be effected more readily through the pur- 
chasing department than through any other medium, 
because it is the clearing house for all requisitions. 
Economical considerations and questions of conve- 
nience should compel attention to this fact. Certainly 
better prices can be obtained if standard articles are 
bought which can be used in any department. The 
advantages also of their interchangeability should not 
be overlooked. There is no logical reason why any 
purchasing of this nature should be subject to the 
vagaries and personal preferences of persons in vari-. 
ous departments. The good of the whole establisli- 
ment should be the paramount consideration. 



In small industrial concerns the purchasing depart- 
ment can often be largely instrumental in standardiz- 
ing much of the material as well as the supplies — es- 
pecially if a technical staff is not employed to do it. 
This subject was covered in Chapter II in the discus- 
sion of standard definitions. 

Relations With Other Departments.— -The purchas- 
ing department exists, as a unit, in an organization 
to supply the needs of the other units. The attitude 
of the other departments will be a reflection of the 
purchasing department's service to them, and to a 
large extent the standard by which its efficiency will 
be measured. 

The staff must be in sympathy with the particular 
requirements of the users of the material, or they will 
fail to grasp one of the most essential ideas in con- 
nection with the purchasing department. Just receiv- 
ing requisitions, placing orders, and checking invoices 
is simply dealing with papers and accounts. Dealing 
with men and things inspires all employees with a 
different spirit in their work. 

Every purchasing agent has had the experience of 
being told what is thought of his department when 
delays occur in getting delivery of some much needed 
material. It is assumed at once that the department 
is entirely unsympathetic with the legitimate aims of 
other departments. There is an appreciable resultant 
gain from the maintenance of harmonious relations 
between departments. The exercise of tact, discre- 
tion, and diplomacy by the heads of departments will 
establish and continue such relations, and it is no 
exaggeraton to say that vast sums are lost where they 



176 



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PURCHASING DEPARTMENT 



177 



do not exist. The purchasing department is in con- 
stant contact with other departments, and co-operation 
and mutual confidence are absolutely essential. The 
question is merely one of being able to meet and han- 
dle the peculiarities and prejudices of human nature. 

If there are points of contact where there is any 
question of the work overlapping that of another de- 
partment, the duties of each should be clearly defined 
and arranged on the basis of the best interests of the 
whole establishment being served. Friction and the 
clashing of authority are in this way avoided, and the 
smooth working of the various activities is much fa- 
cilitated. 

Departmental Meetings.— The best antidote? for mis- 
understandings is understanding, and this can best be 
brought about through departmental meetings. If 
there are a large number of em})loyees, these meetings 
will be found very helpful in the allocation and as- 
signment of work. It will often be found at meet- 
ings of this kind that the work is unevenly distrib- 
uted. Temporary causes may be the occasion for this, 
and if a temporary re-alignment of the work can be 
made to relieve the situation a great deal of good will 
be accomplished. Proofs of this stateme^nt were 
plentiful during the strenuous periods brought about 
through the war, when it was exceedingly difficult to 
get shipment of certain materials. By the rearrange- 
ment of work and the assignment of more help co 
follow it up, great improvement has been effected. 

It is not always possible, of course, for the head 
of a department to divide the work in such a manner 
that each section of the department will have the 



same volume to handle. When consultation is held 
with each section independently, naturally a distorted 
viewpoint is often obtained; but joint consultation 
will remedy this trouble. 

Compiling Records. — Intelligent records are a part 
of every successful purchasing department; the na- 
ture of these records has been treated fully in Chap- 
ters II, III, IV, and VII. The records should be 
reliable and accurate. Although records may be a 
part of, and an aid to, efficiency, they do not in any 
sense insure efficiency. Accurate records may be col- 
lected and used without any resultant efficiency, and, 
on the other hand, a certain amount of efficiency may 
be secured without the use of records. There is no 
doubt, however, that accurate records, make for the 
development of efficiency in the purchasing depart- 
ment. 

Eecords must take note of existing surrounding con- 
ditions. There are elements which are ever present, 
causing continuous changes in business conditions and 
markets, and the compilation of records concerning 
them must be governed by experience and common 
sense. A qualified member of the department should 
have charge of collecting all the necessary data. 

These records do not only portray the market con- 
ditions and fluctuations in prices, to which reference 
has been made in previous chapters, but they are 
needed as an aid in the direction, arrangement, and 
control of purchases, in order that without an undue 
accumulation of materials there may be, at all times, 
sufficient stock on hand to enable the production de- 
partment to maintain its activities uninterrupted. 



1 



178 



PURCHASING AND STORING 



Tlie requisitions, as they arrive in the department, 
will give the exact quantities required. Delivery 
dates should be specified on the requisitions, but it is 
essential for the department to keep a record of past 
purchases in respect to both quantities and prices. 
Other departments may send in estimates of future 
requirements, although unaccompanied by actual 
requisitions, and these will need to be rec(»rded and 
tabulated. 

Relations With Sellers.— Owing to the nature of the 
activities of the purchasing department, the members 
are brought frequently into contact with the represen- 
tatives of the sellers. Most of these are salesmen, but 
the follow-up section of the department gets into 
touch with the persons in charge of shipm(»nts, and 
the invoice division has communications and inter- 
views with the vendor's accountants and financial 
men. 

The policy of the purchasing department, as dis- 
played in its intercourse with outside conci^rns, will 
have considerable influence on purchasing efficiency. 
It is unfortunately a prevailing custom to adopt a 
different attitu<le towards firms and individuals from 
whom orders are expected, than towards those to 
whom orders are given. If the sales department con- 
siders it an essential part of its policy to treat with 
courtesy and consideration all customers, (4ther in 
personal interviews or in written communications, it 
is an equally essential part of the policy of the pur- 
chasing department to adopt a similar attitude in 
their dealings with salesmen and in their communica- 
tions with sellers. Unless this is done, it is exceed- 



FURCHASING DEPARTMENT 



171) 



ingly difficult to get the best results in purchasing. 
Every purchasing department has some callers who 
are perhaps not welcome callers, and probably every 
sales department has some customers it could just as 
well do without. There are all kinds of salesmen, and 
some of them will always think they are not getting 
a square deal. Many purchasing departments keep a 
record of salesmen's visits, and this is sometimes good 
practice, because it enables one to check up the 
progress of negotiations should it become necessary 
because of disputes concerning dates of quotations 
and the persons by whom they were made. It is also 
useful in discouraging visits from over-zealous and 
undesirable salesmen. Forms for recording sales- 
men's visits are given in Figure 27. 



RECORD OF SALESMEN 


Date 


Caller's Name 


Repeseuting 


Intc-iwie^ved by 


Time 


Nature of Business 












. 



FIG. 27. THIS RECORD CAN BE KEPT BY THE OFFICE BOY. IT IS 
SOMETIMES IMPORTANT TO BE ABLE TO REFER TO SUCH A RECORD 
AS THIS. ANY IMPORTANT MATTER DISCUSSED CAN BE NOTED IN 
THE LAST COLUMN BY THE EMPLOYEE OF THE DEPART- 
MENT WITH WHOM THE INTERVIEW WAS HELD. 



180 



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PURCHASING DEPARTMENT 



181 



Cost of Issuing: Orders.— The conditions surround- 
ing the work, and the nature of the purchases, vary 
so greatly that for comparative purposes little value 
can be attached to the actual cost of each order is- 
sued; nevertheless, a purchasing agent should have 
at least an approximate idea of the cost. If the 
operating expenses of a department can be reduced 
by curtailing the number of orders, it will pay to in- 
vestigate this question with a view to consolidating 
many of the minor, or petty, requisitions. 

Some discussion of this matter has appeared re- 
cently in the technical press. Supply houses that 
have been in the habit of receiving many small orders, 
ranging in value from fifty cents to a dollar, liave put 
forth the claim that it is costing in the neighborhood 
of a dollar to issue each of th(\se orders, and that it 
would be cheaper for the house to telephone for the 
small items needed, and have tliem delivered C. 0. D. 
This is a poor argument. It is not worth a negative 
discussion, for its fallacy is apparent. 

It is easy enough to compute with a fair amount of 
accuracy the average cost of orders issued, by assess- 
ing the departmental expense equally on the number 
issued, but one department may average ten orders a 
day, while another may average in the neighborhood 
of one hundred. In value of goods purchased, how- 
ever, the larger quantity may not equal th(^ smaller 
quantity. As already stated, it is advisable to know 
something of this question of value, for the same 
reasons that any executive must know what are the 
expenses of running a business. The principal point 
to consider is: Will a reduction in departmental ex- 



penses be effected by reducing the number of orders, 
and if this is done, will there be any reduction in 
efficiency ? 

Practical Experience for Employees. — Many of the 
employees in purchasing departments are lamentably 
ignorant regarding the material used throughout the 
establishment. It has long been recognized that an 
essential part of a good salesman's training is a 
knowledge of what he is selling. Not just a knowl- 
edge of the price of goods, how much his factory has 
in stock or can make, and when it can deliver, but a 
first-hand knowledge of how the product is made, its 
constituent parts, and how these are manipulated and 
manufactured. It is a pleasure for purchasing agents 
to interview salesmen who can talk about their 
product clearly, concisely, and intelligently. 

It is just as essential to purchasing efficiency that 
all the employees should have some experience in the 
shop or the stores, or in both. This has not been 
considered necessary by the majority of concerns, 
and the result is that it takes employees years to 
learn the distinction between various materials and 
tools. Moreover, they are continually referring ques- 
tions to the head of the department or to his assist- 
ant which they should be in a position to answer for 
themselves. 

By way of example: a man who was put in charge 
of the purchase-order record listed twist drills, elec- 
tric drills, and radial drills all under one heading, 
and also classed together machinists hammers and 
pneumatic hammers. This man was exceptionally 
good in the accounting department, from which he 



182 



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PURCHASING DEPARTMENT 



183 



1 1 
ii 



was taken, but when put on work that required at 
least a theoretical knowledge of materials, tools, and 
supplies, he failed entirely as far as keeping intel- 
ligent purchase records was concerned. On the other 
hand, there are firms that have secured excellent re- 
sults by selecting the employees from hardware and 
machinists '-supply houses, or by first giving their men 
some experience in their own stores or in the super- 
intendent's office, where they come in direct contact 
with the goods that have been purchased. 

Ethical Standards and Policy of the Department- 
Graft is an ugly word. It is a raw term. Not all 
that is meant and implied by the expression, how- 
ever, applies to existing purchasing departments — at 
least not to the purchasing departments of business 
concerns — any more than it does to any other depart- 
ment of a business. On this point I take direct issue, 
as a result of long experience, with the many asser- 
tions to the contrary which are made by disappointed 
salesmen, and which not infrequently app<^ar in the 
public press. In no department are there greater op- 
portunity and temptation to travel off the straight 
and narrow path, and in no department are there 
more insidious elements and conditions to contend 
with, than in the purchasing dc^partment. That form 
of graft which consists of bribery in any form on the 
part of any member of the department, I shall not 
discuss. The practice is vicious and demoralizing; 
the giver, the taker — in fact, any person involv(?d in 
such a practice or having a knowledge of it — is not 
unaware of this fact. To deny that it is entirely non- 
existent would be foolish. There are, however, many 



other elemenfs that thread their way through the 
operation of the purchasing function, which have per- 
haps a much greater influence on the proper and 
efficient exercise of it. 

Reciprocal Agreements in Purchasing. — The sales 
department may wish to encourage and cultivate good 
relations with a prospective customer or a present 
customer who may be able to furnish certain ma- 
terial being purchased by the concern. Pressure is 
brought to bear on the purchasing department to 
favor this particular customer or prospective cus- 
tomer. If, in the process, anything is sacrificed in 
the way of price, quality, or service, then efficient 
purchasing has gone by the board. There is no 
favoritism in true purchasing. Orders are not given 
as ^* favors," but because the recipients can stand up 
better than their competitors under the scrutiny and 
searching investigation of the purchasing department 
— because they have been found worthy. 

The real buyer holds dear certain ideals and funda- 
mentals in the exercise of his profession. Why should 
he cast these aside and throw them overboard to 
enable any other department to make a profit or put 
through a deal? Is that other department so little 
sure of itself that it cannot, on the merit of its goods 
or its proposition, carry on its own transactions with- 
out the assistance of a reciprocal agreement such as 
has been outlined? If the concern which it is pro- 
posed to ** favor" with orders, is in as good a position 
as any other concern — or in a better one — to supply 
the needs of the establishment, the fact would have 
been discovered by any live purchasing agent. 



I ', 






If 



yJ. 



184 



PURCHASING AND STORING 



PURCHASING DEPARTMENT 



185 



It is altogether possible that another department 
may bring to the notice of the purchasing depart- 
ment, in the manner indicated, some firm or corpora- 
tion which is eminently well litted to supply part of 
its requirements; but if this is possible, there has been 
negligence on the part of the purchasing department 
m not discovering that concern itself. If, on con- 
sideration of all the factors which enter into right 
buying, it is found that a certain firm is on an 
equality with the best, then by all means let it have 
the business; but if it is not, then that other depart- 
ment should be notified of the exact conditions. The 
purchasing department cannot assume responsibility 
for buying anything on a reciprocal agreement which 
involves a departure from the fundamental principles 
of good buying. Reciprocity is probably the cause of 
more evils than unadulterated bribery. 

Executive Pressure.— More unpardonable than the 
pressure exerted to bring about reciprocity, is the 
pressure brought to bear by officials and executives 
upon the purchasing department to make that depart- 
ment buy from some concern in which thoso officials 
are interested. Perhaps the officials are stockhoklers, 
or have relatives or friends who are interested in the 
firm in question. Some purchasing agents are not 
prepared to part with their positions, and will there- 
fore give way to this pressure, disregarding the es- 
sentials of price or quality, or both. 

Possibly an official may issue instructions that the 
purchasing department shall buy from some concern 
which has been brought to his notice by a friend, 
simply to do a good turn for his friend, and with no 



ulterior motives in view. This kind of thing is often 
done thoughtlessly and heedlessly, but the instructions 
should be qualified, to safeguard the principles of pur- 
chasing, and with a due regard for the interests of 
the official's own corporation. If the instructions 
issued to the purchasing agent are not qualified, and 
would seem to be given in disregard of the funda- 
mentals of good buying, then it is certainly up to the 
purchasing agent to make a report to the proper 
quarter. 

In instances in which there are interlocking in- 
terests, the principles of buying are not involved. 
If any difference exists in the matter of price be- 
tween what is paid and what could be obtained in 
open competition, it is probably adjusted by the 
ownership which is held in the selling concern. In 
such cases it is advisable for the purchasing agent to 
refrain- from asking for competitive bids. There would 
be no prospect of their acceptance and the bidders 
would quickly '*get wise to" the situation. To pre- 
tend that genuine competition exists when it does not, 
would seriously injure a purchasing agent's effective- 
ness. 

Friendship in Business.— Friendship naturally de- 
velops when men of congenial dispositions are brought 
together in business life. There is a narrow minded 
element that would have the purchasing agent forego 
the privilege of selecting friends from among the men 
with whom he comes in contact. This element con- 
tends that it is not only questionable, but unethical, 
for a buyer to dine with a man whose commercial 
function is to sell goods. There are also some pur- 



186 



PURCHASING AJNl) STORING 



t 



chasing agents who, aware of this attituch>, impar- 
tially rebuff all salesmen, whether they are well-mean- 
ing or not, who strive to broaden a business acquaint- 
ance. 

Any broad-minded purchasing agent will give 
friendship as readily and as quickly as he receives it, 
and if he does this to develop an embryonic friend- 
ship or to perpetuate one already formed, his conduct 
is right and may lead to gn^at good. Many true 
friendships between buyers and sellers have been 
formed. But if the purchasing agent takes advantage 
of his office to receive special remuneration, he de- 
cidedly does wrong. 

Friendship is a matter apart from money. It has 
been, and always will be, an important factor in busi- 
ness transactions. On a proper plane it is to be en- 
couraged betw(^en buyer and seller, for it can be of 
great advantage to both parties. I have referred to 
this subject in previous chapters, and I have ex- 
plained how valuable friendship can be when a buyer 
is suddenly called upon to purchase something new. 
To confer with business friends at such times is the 
quickest and surest way to find the best market and 
the best price. When it is difficult for a buyer to 
secure an article wanted quickly, a seller, for the sake 
of friendship, will undertake to supply it, and will 
put himself to much inconvenience to do so. Friend- 
ship can be cultivated even through the very manner 
in which a salesman is told he has lost, or cannot 
have, an order. These may seem small things, but 
courtesy, square dealing, honesty, and straight- 
forwardness beget friendship. They are appreciated 



PURCHASING DEPARTMENT 



187 



by sellers, and the buyer benefits very largely from 
them. The small effort expended in this manner will 
bring returns when least expected, and to a much 
greater extent than could be anticipated from the 
effort made. Friendliness is a natural qualification 
of some buyers; it should be cultivated by others. 

There are ethics of selling, as well as ethics of buy- 
ing. Many business houses have adopted and main- 
tained a certain standard of conduct in their relations 
with other firms, and have built up and firmly estab- 
lished a reputation for themselves on this standard. 
There should not be mutual suspicion and distrust 
between such concerns and buyers who measure their 
motives by the highest standards of honor and con- 
duct governing their motives, for the principles of 
both parties are identical. 

Eflfects on Whole Depaxtment.— The maintenance of 
a standard in purchasing is not the particular privi- 
lege of one man. Any attempt to pervert these 
standards is usually attributed to a desire on the 
seller's part to secure an order at a higher price than 
is justified, but this is very rarely the case. Inflated 
prices are very easy to detect, and returns are not 
commensurate with the risks incurred. Degrading 
quality is a simpler and easier method. Such 
procedure involves the persons in charge of inspec- 
tion, or the receiving clerk. If inspectors are sent to 
the seller's plant to examine and inspect material be- 
fore shipment, they must be men of proved character 
and dependability. 

It is futile to contend that the extension of scientific 
methods eliminates all forms of dishonesty. It does 



188 



PURCHASING AND STORING 



help, materially perhaps, through the safeguards 
erected. But independently of this, buying, as a com- 
mercial pursuit, stands on a higher plane to-day than 
it did even only a few years ago. This development 
will undoubtedly continue. Many of the liltle tricks, 
misrepresentations, evasions of contract ol)ligations, 
withdrawal of accepted quotations, divulgence of a 
bidder's price to a competitor, and innumera))le other 
similar expedients, are fast disappearing from both 
the buyer's and the seller's methods. Their relations 
are being established on a better basis— a basis which, 
according to present-day standards, should be desig- 
nated a businesslike basis. 

A few other points in connection with the policy of 
the purchasing department are so well expressed in 
the following quotation that I include it here. The 
extract is from a speech entitled **The Cultivation of 
a Higher Code of Business Practice and of Business 
Ethics," delivered at the twentieth annual convention 
of the National Association of Credit Men. 

Am I not safe in saying that we have no greater and no 
more urgen»t task than this? The unbusinesslike i)ractiee of 
allowing bills to run after maturity, the exaction of unjust 
claims and allowances, the rejection of goods shipped on bona 
fide orders, the deduction of discounts after the discount pe- 
riod has expired — are not these abuses the bane of every cr(?dit 
department? And why? Because there has grown up in our 
land too light a regard for the binding obligation of a con- 
tract. An importunate desire for immediate gain has usuj-ped 
the place of honor. We need to assert that the placing of a 
bona fide order confers a property j-ight that cannot be re- 
scinded except at the option of the vinidor ; that after a ship- 
ment has been received and accepted, the shipper is justly 
entitled to payment in full, according to the contract, witliont 



PURCHASING DEPARTMENT 



189 



unjust deduction ; that time is of the essence of the contract 
—therefore, the bill should be paid promptly at maturity; 
and that the taking of a discount, except within the discount 
period, reflects upon the honor of the man or firm deducting 
it. Too long have we acquiesced in these evils. Perhaps we 
are m part responsible for their existence. It now devolves 
upon us to put them without the pale, as unbusinesslike, un- 
ethical, and unwarranted in practice or in morals. 

Outline of Work.— In preceding chapters I have 
dealt with many phases of the work of a purchas- 
ing department. Before discussing the organization 
necessary to carry out this work, I wish to give the 
following detailed survey of that work and a resume 
of what it embraces: 



1. 



2. 



3. 



The purchasing procedure. That is, the receipt of 
the requisition; its proper examination; the 
various checks to which it is subjected; establish- 
ing a price for the material requisitioned, either 
from contracts or by obtaining new quotations— 
this step involves comparison of the bids received; 
negotiations with the successful bidder; arranging 
all the terms of contract; and finally, closing the 
deal and placing the order. 

Getting delivery of the order. Following up the 
vendors; arranging for inspection, as stipulated, 
either at vendor's factory or at destination; pos^ 
sibly arranging for transportation and tracing 
while in transit. 

Receiving the invoices ; submitting them to proper 
checks, to make sure that they are strictly ac^ 
curate in every way, and that they represent 
exactly the price, terms, and quantities stated on 
the order; finally, approving them for payment. 



I 



190 PURCHASING AND STORING 

4. The collection of information necessary and use- 
ful to the department. This information must be 
tabulated and recorded in such a manner as to be 
available for instant use. Practically every mem- 
ber of the department should have access to such 
data. One of the principal things to keep in 
mind is the necessity for clearness and lucidity. 
This accumulation of information includes cata- 
logues and all literature considered essential for 
the department. Some forms for recording this 
information have been given in earlier chapters, 
and others will follow in the discussion of the re- 
spective subjects. 

These, in brief, are the operations the purchasing 
department covers. In later chapters on routine work 
they will be closely followed, step by step, and each 
detail will be explained. The above summary is in- 
tended as an outline that may render the more in- 
telligible the discussion of the organization of the de- 
partment, which follows. 

Organization.— The size of the department will, of 
course, conform to the needs of the establishment. It is 
impossible to lay down any set rules in regard to this 
point. I have been frequently questioned concerning 
the requisite number of employees, and in such in- 
stances the information on which I was expected to 
base an opinion was the number of men employed in 
a factory, the capital of a corporation, and other 
features which have only a very indirect bearing on 
this point. The number of employees is determined 
by the amount of work, and the calibre of the em- 



PURCHASING DEPARTMENT 



191 



ployees by the importance of the purchases. It is im- 
possible to decide a question of this character with- 
out first making a close examination and scrutiny 
of the work. Conditions vary in every concern, and 
individual necessities determine in every case. 

Establishments that are concentrated in a group of 
buildings, with the stores in close proximity, can 
handle the purchases with less help than those that 
have several factories, scattered over a wide area. 
Requisitions for an amazing variety of materials pass 
through some purchasing departments, making the 
amount of detail work far greater than it is in those 
departments that buy a limited variety. Then again, 
it is possible, with some materials, to place long-time 
contracts; in cases of this kind the work is con- 
siderably lessened, as it is not necessary, under such 
circumstances, to canvass the market so often. All 
these features and many others determine the number 
of employees requisite to carry on the work efficiently. 

Irrespective of the volume, there is a well-defined 
course through which the work must pass. I propose 
to outline this course. In accommodating it to indi- 
vidual conditions, it may be found necessary in small 
departments to amalgamate some phases of the work, 
while in large departments the handling of what is 
called a **one man's job'' may require several men. 

Figure 28 illustrates in a diagrammatic manner the 
organization of a purchasing department. The duties 
of each member are briefly outlined in the following 
description. 

The Purchasing Agent.— This man will have the 
general management and supervision of the depart- 



192 



PURCHASING AND STORING 



1: 















^ 




PURCHASING 
AGENT 






1 






CHIEF 
CLERK 






















INVOICE 
CLERK 






REQUISITION 
CLERK 










1 






1 






TRAFFIC 
CLERK 






PRICE 
CLERK 










1 






1 






FOLLOW-UP 
CLERK 


, 




ORDER 
CLERK 






• 




1 






1 






STENO- 
GRAPHERS 






FILING 
CLERK 
























INFORMATIOrl 
CLERK 1 



















PURCHASING DEPARTMENT 



193 



PIG. 28. ORGANIZATION DIAGRAM OF PURCHASING DEPARTMENT. 

SEE TEXT FOR EXPLANATION. 

ment and will direct its policies. He will consult- 
whenever occasion requires— with other department 
heads, such as those in charge of the production de- 
partment, sales department, accounting department, 
and financial department. Except for some minor 
details, he should settle all differences concerning 
relations with, and connection between, his depart- 
ment and another. He will personally conduct nego- 
tiations, and will close all large and important con- 
tracts. If these are vital to production work, he 
will oversee the progress being made by sellers, and 
probably will arrange for inspection or tests to be 
made. He will have to interview many callers; he 



will have to adjust any serious differences that may 
arise with vendors. He will indicate to his assist- 
ant or chief clerk* the sellers who he believes should 
bid on certain materials. He will have to keep him- 
self posted on prices of commodities, on financial 
problems, on all business features which could affect 
the purchasing function — in short, on business condi- 
tions generally. He will be the inspiration of his de- 
partment, and its responsible head. When the pur- 
chasing has to be done for several factories or 
branches, and local buying is necessary, the depart- 
ment head might take the title of General Purchasing 
Agent. He would then have an assistant, who would 
assume a portion of his work, subject to his general 
direction. In the absence of the General Purchasing 
Agent, his assistant would be supreme. 

Assistant Purchasing Agent, or Chief Clerk. — In 
some purchasing departments, it may be advisable to 
have both an assistant purchasing agent and a chief 
clerk. In such a case the chief clerk will take con- 
trol of, and be responsible for, the clerical work of 
the department, while the assistant purchasing agent 
will be his superior and will assume some of the 
duties of the purchasing agent. Whichever title is 
held by the man next to the purchasing agent, he 
must take as much detail work off the head of the 
department as practicable, in order that his superior 
may have as much time as possible for consultation 
and for the larger affairs of the department. He 
will have to interview some pf the salesmen, and 
he should also, if possible, see all requisitions as 
they arrive in the department, and then turn them 



)■i^ 



194 



PURCHASING AND STORING 



I 



over to the requisition clerk. He should see all 
correspondence intended for the purchasing agent; he 
will handle part of the correspondence relating to 
bids, designating the firms from which quotations are 
to be requested. He will be responsible for the dis- 
cipline of the department, administer the policies of 
the purchasing agent, and generally direct the routine 
work. 

Requisition Clerk.— All requisitions should go to 
the requisition clerk to be checked for autlientifiea- 
tion. The specification should also be checked. It 
may be possible to arrange foi- this man to keep the 
purchase-order record, as explained in Chapter 11. 
He should see that quantities are properly stated, and 
also the point and time of delivery, and so on. In 
brief, he should see that the requisitions are in cor- 
rect shape to be dealt with for price-getting and 
ordering. 

Price Clerk.— The requisition will pass to the price 
clerk from the requisition clerk. He may keep the 
records of prices, both current quotations and those 
prices established by existing contracts. If there is a 
price established by contract, he will insert it on the 
requisition and pass it along for the order to be writ- 
ten up. He should see that requests for quotations 
are properly written up, and should keep a record of 
the best sources of supply, if there is no gem^ral infor- 
mation clerk for this work. 

Order Clerk.— The order clerk should receive the 
requisition after all questions regarding specifications, 
price and delivery are settled; then he should write 
up the order. He will be responsible for thci proper 



PURCHASING DEPARTMENT 



195 



wording of the orders and for checking them, as well 
as for the distribution of the copies to interested 
parties or departments. 

Follow-up Clerk. — The follow-up clerk will be re- 
sponsible for following up and getting delivery as 
specified on the order, and will report at once to the 
chief clerk when he is unable to get satisfactory as- 
surances, or when delays of any kind occur. He will 
have to turn over to the traffic clerk all details of 
orders which he will be required to trace. He must 
also advise the various departments regarding 
promises of shipments, and must promptly notify 
them of any delays. 

TraflSc Clerk. — This man will be responsible for 
tracing all shipments while in transit. He must be 
posted on freight rates and classifications, and must 
give information to the chief clerk, whenever neces- 
sary, regarding best routes between shipping point 
and destination and probable time required for trans- 
portation. He will be required to check all freight 
and express bills, as well as all freight allowances or 
charges on invoices. Finally, he should adjust all 
claims against transportation companies. 

Invoice Clerk. — The invoice clerk will receive and 
be responsible for all invoices. He must get them 
approved before the discount date expires, and must 
check them from every angle to see that they con- 
form to the order in every way. Quantity, price, and 
delivery, must be verified. Prevention of duplication 
must be certain and positive. He must take up with 
sellers all discrepancies — with the understanding that 
any decisions of his are subject to the approval of the 



)i 



196 



PURCHASING AND STORING 



chief clerk — obtain credits for these, and generally ad- 
just all differences. Finally, he must keep close track 
of all invoices, to insure their approval in tini<^ for the 
financial department to pay them on the date that was 
agreed upon. 

Information Clerk.— The information clerk will 
have charge of catalogues, and should properly index 
and classify them. He should keep all rtn-ords as 
directed by the chief clerk, and should see that they 
are always where they may be referred to by any 
member of the department. He should be able to 
quote market prices and recent [)rices to othc^r depart- 
ments and to give them information concerning avail- 
able suppliers. When any new material, or a special 
tool, is wanted, he should be able to state or ascertain 
quickly where it can be procured. 

General Arrangement of Department.— There are 
many minor activities connected with stenographic 
work, receiving callers, mailing, and so on, which are 
common to every business office and which I shall not 
discuss in detail. In the diagram of a department, 
shown in Figure 28, no provision is made for inspec- 
tion. When this part of the work comes under the 
jurisdiction of the purchasing department, it will be 
taken care of by the purchasing agent or the cliief 
clerk, provided the inspection is carried on at seller's 
warehouse or factory; in these cases the orders are 
probably of sufficient importance for one of these per- 
sons to supervise delivery. If the inspection is done 
at the factory, it may be independent of the f)urchas- 
ing department. I shall state instances of tlds kind 



PURCHASING DEPARTMENT 



197 



later, in connection with the work of the storeskeep- 
ing department. 

The organization of the personnel of a purchasing 
department is bound to vary with circumstances and 
conditions. The work may in some instances be 
found to be much heavier in some sections than in 
others; if so, a rearrangement to meet this condition 
can be easily provided for. Where a large number of 
purchases are made, it may take as many clerks to 
check and handle the invoices as it does to check 
requisitions, price them, obtain quotations, and place 
orders. In many purchasing departments each sec- 
tion keeps such records as it requires for its particu- 
lar work. Generally speaking, however, this practice 
is not to be commended, since it usually means dupli- 
cation of work; a common information bureau, if 
properly arranged and easy of access, is the preferable 
method. 

The w^ork of any purchasing department must be 
organized on some comprehensive scheme; moreover, 
the work itself must follow a route that is arranged in 
logical sequence, in order that it may not by any 
chance undergo duplication or backwardation. The 
aim should be to plan a route for the work with a 
definite object in view, coherent and thorough. Over- 
systematizing must be avoided; if it is indulged in, it 
will lead to confusion and will be a menace to effi- 
ciency. On the other hand, an incomplete system will 
render the work laborious. The justification of a 
good system and good methods is their effectiveness 

• 

m covering with accuracy and despatch all the points 
comprehended in the work of the office. It will main- 



ii 'ft 






It 



198 



PURCHASING AND STORING 



tain order, regularity, and expedition. A good 
system is dictated bv common sense. It has to be ad- 
ministered by the organized office staff which has all 
the human frailities to contend with. The better co- 
ordination it can bring to their efforts, the greater its 
potentialties for success. 



{ 



fil 



CHAPTER X 
THE PURCHASING LIBRARY 

Books. — The number of books a man possesses on 
any subject is largely the measure of his interest in 
that subject. The existing literature on purchasing 
is exceedingly limited, but nevertheless the student 
of that subject has a very wide field from which to 
select his reading. There is scarcely any book pub- 
lished on any business subject from which he cannot 
glean something which will broaden his knowledge 
and add to his value to his profession and to his 
concern. For this reason, it is expected that a pur- 
chasing agent who is truly interested in his work 
will own many books on business methods and prac- 
tices.* 

The day has passed when any business man can 
learn by experience only. Would a doctor, a lawyer, 
an engineer, a midshipman, an army cadet, or would 
any advertising man, salesman, or accountant think 
of reaching the highest niches in their respective 
professions through experience alone? It is possible 
today to save oneself many hard knocks by taking 
advantage of the experience of other business men 
as recorded in their reliable data. 

The output of business books has been on the in- 
crease during the last few years, and the publishing 

199 



Ml 



I i! 



I 



200 



PURCHASING AND STORING 



houses that have issued these books have made a 
definite contribution to the business world. Like- 
wise, the libraries that have recognized their op- 
portunity to render a specialized service to business 
men, have added much to the general betterment of 
business. 

Books dealing in a methodical, cut-and-dried man- 
ner with any business subject are not the only jjooks 
that the purchasing agent will find it worth his 
while to study. It is becoming more and more evi- 
dent that the very best tonic for the business man 
is the reading of inspirational books. Those which 
set standards and ideals, which command our respect 
are always worthy of a place in the library. 

It is impossible to name any particular book, or to 
give any list of them, suitai)le for the students of 
purchasing. Selections can be made from the 
catalogues of publishers of technical and business 
books, and good reading can always be found in any 
public library. A book which is an excellent guide 
to reading, and which should prove valuable to any 
person who wishes to get a comprehensive list of 
business books, is ** Sixteen Hundred Business 
Books." It was compiled by Sarah B. Ball, of the 
Newark, N. J., Public Librarv and is published by 
H. W. Wilson Co. of White Plains, N. Y. 

Periodicals.—Foremost among periodicals suitable 
for the purchasing library is *'The Purchasing 
Agent." It is ably conducted, and alwavs has some 
information of value to those engaged in purchasing. 
It may well be given a place in every i)urchasing 
agent's library. 



THE PURCHASING LIBRARY 



201 



For those buyers who must be posted on the daily 
fluctuations in the prices of metals with information 
concerning output, movements, and available stocks, 
as well as in regard to estimates of production, there 
is **The American Metal Market." 

**The New York Journal of Commerce" is exceed- 
ingly valuable for the student of general business 
conditions, commodity prices, and commercial mat- 
ters of interest. **The Annalist," a weekly publica- 
tion, is an excellent medium for those who want the 
technical and business information without the gen- 
eral news items. 

Those interested in foreign trade conditions should 
have **The Americas," published gratis by the Na- 
tional City Bank of New York. There are several 
publications which make a specialty of industrial 
management, and also many devoted to particular 
industries, such as hardware, textiles, w^oodworking, 
paper, cordage, coal, and so on. 

Not only are all these periodicals valuable for in- 
formation concerning prices, commodity movements, 
and general business, but their advertising columns 
are worthy of scrutiny, for it is through these that it 
IS often possible to enlarge one's market and field of 
operations in buying. 

Registers and Agencies.— It is almost impossible 
lor a purchasing department buying a large variety 
of articles to get along successfully without one of 
«ie well-known registers, such as Hendrick's or 
Thomas's. These are compiled with great care and 
are very comprehensive, but, as explained in Chap- 
ter II it may be necessary to take the lists given 



202 



PURCHASING AND STORING 



them and further subdivide these, segregating the 
firms that are best fitted to supply one's special re- 
quirements. 

In order that it may be possible to determine the 
financial standing of concerns with whom business 
relations are contemplated, the library should include 
either Dun^s or Bradstreet's reference books, or per- 
haps those of such agencies as Proudfoot's and 
Moody's. Through these, practically any informa- 
tion deemed necessary can be obtained, including 
names of members of firms, ofiicers of companies, and 
so on, and special reports of all kinds. 

There are other sources from which much infor- 
mation can be collated by the purchasing agent. 
Many trades have an agency that disseminates news 
for its particular field. Babson's Statistical Organ- 
ization, for example, issues to subscribers exception- 
ally good information based on scientifically col- 
lected facts and data. 

Catalogues. — Every well-ordered purchasing de- 
partment contains a comprehensive equipment of 
catalogues. Not only those which are pertinent to 
regular purchases should be kept, but also those 
covering goods in which it is likely that one may be 
interested at any future time. It is also advisable to 
have catalogues of manufacturers who make compo- 
nent parts of some article or machine. For example, 
one may not buy cut gears, but if one is buying some 
machinery or article of which cut gears are a part, 
then a gear catalogue is valuable for the information 
it gives. 

It is impossible even to estimate the amount of 



THE PURCHASING LIBRARY 



203 



money spent annually on catalogues, but the total 
must be stupendous. The wastage, of course, is 
enormous, but to set against those catalogues which 
are lost forever are those which work overtime. 
Taking it all in all, the expense must be justifiable 
or the custom would have been discontinued or 
shown a tendency to die out, whereas, as a matter of 
fact, it is undoubtedly increasing. 

There are many concerns that get a large propor- 
tion of their business through catalogues. The great 
mail-order houses sell their entire line through this 
medium. On the other hand, some products could 
perhaps never be sold without personal explanation 
and solicitation. A catalogue is an advance agent — 
it is on the ground to give preliminary information, 
and is frequently the precursor of an active order. 

To the purchasing department, catalogues are of 
great value. Other departments, also, find frequent 
use for them. The estimating department may want 
to look up some valve which is specified by a pros- 
pective customer; the shop engineer may wish to 
know the foundation plan of a boring mill; the draft- 
ing room may require to know the channel sections 
rolled at a certain mill. Questions are constantly 
being asked the purchasing department regarding 
sizes and styles of very many articles, and it must 
be prepared to answer fully and accurately. 

The purchasing department should have complete 
charge of all catalogues for the whole establishment. 
It acts as a clearing house for information needed 
by other depastments, and in order that it may meet 
the demands made on it, a complete installation must 



u}| 



lii 



204 



PURCHASING AND STORING 



f 



be maintained, and kept in such shape as to be avail- 
able for quick reference. 

Technical Information in Catalogues.— The value 
of technical information in some catalogues is not 
always fully appreciated. It must be remembered 
that this information is written by highly trained 
practical men, experts in their particular line. Gen- 
erally it is compiled by men who love their work, and 
whose ideals are the perfection of their product. 
Primarily, of course, a catalogue is an advertising 
medium, and advertisements cannot always be taken 
at their face value, but if the advertising manager 
uses the knowledge and services of trained technical 
experts and inserts it in a catalogue, without altera- 
tion, the value of the inforniation is not lessened. 
The matter contained in catalogues forms a liberal 
education for any persons engaged in ])urchasing 
work. The modern tendency in catalogues is exact- 
ness in the claims made, so that specific statements 
can usually be relied upon. As regards general 
statements, they are sometimes apt to be rated above 
par. 

By way of illustration I shall take, at random, a 
catalogue of leather belting. It contains an exhaus- 
tive treatise on hides. Their physical characteristics 
are explained, the difference in the texture of hides 
from different breeds of cattle is pointed out, and it 
is shown how these need a variety of car(^ in treat- 
ment during the tanning process if a sufficient de- 
gree of uniformity is to be obtained. Th(» progress 
of the hides through the tannery is minutely de- 
tailed. Illustrations of hides are given, showing in 



THE PURCHASING LIBRARY 



205 



Avhat manner they are cut and trimmed, and for 
what purposes the backs, shoulders, centers, and 
sides are used and how they are graded. Next, there 
is a disquisition on the effects of acids, oils, water, 
and so on, on leather; an explanation of how belting 
is manufactured; how to order belting; how to figure 
horsepower transmitted; how to fasten belting; how 
to figure speed of pulleys — in fact, every conceivable 
mechanical condition is explained, and rules are given 
in connection wifli them. All types of belt drives 
are illustrated, and the necessary data are given 
with which to figure them correctly. 

A catalogue of drop forgings gives a history of 
the art, what the process is, how dies are made, the 
effect of heat treatment on metals, what carbonizing 
is and why it is done. An explanation of case 
hardening follows, with suggestions as to its em- 
ployment for certain purposes. Micro-photos are 
shown, illustrating structural differences developed in 
steel by varying its treatment. 

There are many catalogues of tool-steel manufac- 
turers, which give much valuable information regard- 
ing steel processes. Beginning with the iron ore, the 
description makes clear in what manner oxygen is 
separated from the iron, and deals in detail, step by 
step, with the various treatments to which the metal 
is subjected until high-grade steels are pro- 
duced by the introduction of different percentages of 
manganese, nickel, chromium, tungsten, vanadium, 
and so on. Then follow details regarding forging, 
hardening, tempering, and annealing. 

Manufacturers of insjalated wires and cables give 



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20G 



PURCHASING AND STORING 



the dielectric strength of different forms of insula 
tion; the properties of resistance wires; a fund of 
information on electrical matters; tables of sectional 
areas; comparisons of wire gauges; and ma ay othei 
features which at some time are essentially involved 
in purchasing work. 

I could continue these illustrations indefinitely, but 
I have already given enough to show the gr(iat value 
of catalogues in the education of the purchasing de- 
partment. Quite often the technical staff, also, de- 
pends upon them for information. A well-selected 
list of catalogues, properly arranged for reference 
and consultation, is therefore a necessary and 
valuable adjunct to any purchasing department, from 
an educational point of view alone. 

Standardization of Catalogues. — So much publicity 
has been given recently to the standardization of 
catalogues, and there has been so much discussion in 
regard to the subject, that a tremendous impetus has 
been given to the movement. Tangible result? must 
certainly follow. Since the matter is one in which 
all persons engaged in purchasing have a large in- 
terest, it is well to note in what manner the change 
will affect them. 

The present catalogue system has grown up with- 
out any consideration of uniformity. Each manufac- 
turer has apparently looked on the preparation of a 
catalogue from one point of view only — his own. 
The buyer's interest and convenience in the matter 
have never entered into his calculations. It there- 
fore becomes necessary for the person who must find 
accommodations for a large number of catalogues, to 



THE PURCHASING LIBRARY 



207 



provide for an endless range of sizes. This require- 
ment, of itself, involves the loss of much valuable 
filing space. Furnishing catalogues in bound books, 
each book containing information on many articles, 
also compels the buyer to study a number of separate 
bound volumes, handling countless pages relating to 
other material, which at the time holds no interest for 
him. 

The high cost of buying and the high cost of selling 
will both be appreciably lowered by the change 
which is coming, and for which every purchasing de- 
partment should be prepared. Today many thousands 
of price lists, circulars, and data sheets received by 
buyers are consigned to the waste paper basket be- 
cause the buyers have no method of properly filing 
them, or because owing to the variation in the size 
of catalogue, their facilities are already overcrowded. 

The tendency in the movement for standardiza- 
tion is toward the issuance of all catalogue matter 
in bulletin form. The bulletins will include every- 
thing pertaining to catalogues — price lists, illustra- 
tions, data charts, tables of sizes, and so on. All the 
bulletins will be of uniform size; it looks, at present, 
as if the 8^^ x 11 inch size would finally be adopted. 
A manufacturer who makes several articles will have 
a bulletin for each article. This bulletin plan has 
already been put in effect by some manufacturers, but 
without any agreement among themselves as to a 
uniform size, and in many cases the bulletins are 
made to fit special binders — they are then really no 
better than the ordinary old-fashioned catalogues. 

The principal advantages to the purchasing depan- 



I 



208 



PURCHASING AND STORING 



ment of the new scheme of standardization are, 
briefly, the following: All bulletins from every 
manufacturer, pertaining to an article or a material, 
will be filed together, and whcm it is necessary to 
look for information on any particular artick^ or ma- 
terial, it will be found located in one place. It will 
not be necessary to make a search through many 
catalogues, some with the index in front, others with 
the index at the back; some with prices attached, 
others with separate price lists. These catalogues, 
under the present system, are scattered all through 
the tiles. There are many other points of advantage 
to the buyer, which I shall not enumerate since the 
scheme is not yet an accomplished fact; it will cer- 
tainly be adopted, however, and every purchasing 
department should be posted regarding its main 
features. 

Procuring Catalogues.-^A search through the ad- 
vertisements in the trade publications coveiing the 
manufactures in which the purchasing department is 
interested, will reveal the names of many concerns to 
which applications for catalogues may b(^ made. 
Visiting salesmen will speedily arrange to have their 
respective houses forward catalogues, many of which 
will be mailed unsolicited. Catalogues are a distinct 
asset. 

The extent to which the accumulation of catalogues 
should be carried, must be decided by each depart- 
ment for itself. It sometimes seems to me that no 
catalogue which is issued should be discarded. In 
my own tirm, calls are made on the department for 
a tremendous variety of articles, because of the wide- 



uii^V 



THE PURCHASING LIBRARY 



209 



spread and varied activities of this company. Un- 
doubtedly, however, in the great majority of in- 
stances there is a limit beyond which the collecting of 
catalogues should not be carried. This is particu- 
larly true in industrial establishments that manufac- 
ture a single line of articles or machinery. In such 
cases, only those catalogues that describe the ma- 
terial or equipment for which there is immediate or 
prospective need, should be accorded a place in the 
files of the purchasing department. 

Filing Catalogues. — It is not possible to do very 
much in the way of grouping catalogues, except in 
the matter of size, and in this respect they can be 
segregated into five or six groups. These dimen- 
sional groupings can be readily recognized in the 
index from the key letter prefixed to the number. 
For instance, B146 would be in the B group, and 
could be found much more quickly than if it were in 
numerical sequence irrespective of the group in which 
it rightly belongs. 

The grouping together of all catalogues for one 
class of material has the advantage of enabling a 
person to select quickly all the catalogues on one 
subject, but in every other respect such a scheme is a 
dismal failure and cannot be recommended for use in 
connection with any ordinary file. Catalogue filing, 
for the reasons given, is loose, ragged, and un- 
economical under the best conditions, so far as space 
occupied is concerned, but in keeping all catalogues 
on one subject together every one of the disadvan- 
tages is greatly aggravated. 

In addition to the catalogues in the form of bound 



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'Ml 



210 



PURCHASING AND STORING 



books, in every purchasing department there are 
almost innumerable pamphlets, circulars, price lists, 
and so on, which it is necessary to keep and file. 
These can be kept in cartons, envelopes, or folders, 
of uniform size, and a section of the catalogue filing 
case can be devoted to receiving them. There is no 
difficulty in segregating these and in keeping 
pamphlets pertaining to a certain material in one 
carton or folder. 

It is, of course, imperative to maintain a complete 
cross-index under the name both of the supplier and 
of the material, as shown in Figures 29 and 30. It is 
also essential to have a record of those catalogues or 
documents removed from the file and taken out of 
the department. The latter procedure can be taken 
care of by inserting cardboard dummies in the files 
in the place of removals. On these dummies a record 
should be made of the disposition made of the 
originals. A record can also be kept on the index 
card, or a special card can be kept upon which may 
be entered a memorandum of all documents taken 
away and the names of the persons to whom they are 
delivered. 

Universal Standard Catalogue System.— -E M. 
Hooker, formerly President of the Catalogue Cabinet 
Company, of New York, who has operated catalogue 
libraries for over twenty years, has devised what he 
terms **The Universal Standard Catalogue System,'' 
and is publishing indexes to the catalogues issued by 
the different trades. 

These indexes assign a number to each catalogue, 
so that the user may have a completely indexed 



Name of 
Manufacturer 



Address 



Section 



iS 



No. 



146 



LIST OF MATERIAL MANUFACTURED 



FIG. 29. CARD FOR INDEXING CATALOGUES UNDER 
NAME OF MANUFACTURER 



MATFRIAI 








Manufacturer 


Address 


Section 


No. 



















































































ill 



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FIG. 30. CARD FOR INDEXING CATALOGUES UNDER 

NAME OF MATERIAL 
211 



212 



PURCHASING AND STORING 



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library of catalogues, if he will number them and 
arrange them in accordance with the index. The 
numbering is so arranged as to group catalogues 
automatically according to their subjects. The in- 
dexes are supported by the advertisers, and are free 
to any users of catalogues. Labels to paste on the 
catalogue may be procured from Mr. Hooker. These 
labels give, in addition to the number of the cata- 
logue, a description of it, so that the user may easily 
identify the catalogue to which the label belongs. 
The saving in labor will more than pay the cost of 
these labels. 

The cabinet designed to accommodate catalogues 
under this system is unique, in that it is so arranged 
that there is no excuse for misplacing a catalogue. 
Cartons are furnished of uniform width, but of vary- 
ing depths and thicknesses. Therefore any catalogue 
or group of catalogues can be enclosed in a carton of 
suitable depth and thickness. The maintenance of 
a uniform width for the cartons means that material 
will not slip and slide about in the file. The fact 
that these receptacles are dust-proof is a valued 
feature in many offices. 

Any ordinary bookcase grouping of catalogues by 
subjects entails considerable loss of space, because of 
the inequality in the sizes, but in this system e(?onomy 
of space has been considered and the loss has been 
reduced to a minimum. The same advantages could 
not be obtained in any other way. 

The Universal System and Standardization.— The 
most important aid to convenience in the filing of 
catalogues, is the rapid adoption by manufacturers 



THE PURCHASING LIBRARY 



213 



of the standard-size bulletins recommended by the 
American Institute of Architects and other technical 
societies. These bulletins should be 81/2 by H inches, 
without covers, and each should treat of but one sub- 
ject, so that they may be filed in any letter file, and 
distributed according to subject. 

These standard-size bulletins, when filed in the 
folders invented by Mr. Hooker, and used in con- 
nection with his index, undoubtedly constitute the 
most practical solution of the catalogue problem yet 
offered. The folders are devised to contain the bulle- 
tins in such a manner that they can be opened flat 
without being removed from the folder; moreover, 
they are fastened to it, so that it is impossible to mis- 
place them. The folder is prominently marked with 
the group number. When standardization has made 
sufficient advance to warrant the adoption of this 
system, it should command very wide attention. 



I M 



I I 



I: 



CHAPTER XI 

THE USE OF CHAETS AND DIAGRAMS IN 

PURCHASING 

Figures and Charts. — Every purchasing department 
is interested in compiling, asst^mbling, and recording 
facts and data connected with materials purchased 
and consumed. These facts and data may be quanti- 
tative, or they may indicate fluctuations in prices and 
quotations covering varying periods. It is also de- 
sirable in some cases to have statistics regarding the 
particular materials or commodities that bulk large 
in the activities of the establishment. 

Accurate data and facts are extremely important 
and valuable, but if they are not clearly presented 
the results to be gained from them do not sliow up as 
they should, and consequently lose mucli of their 
force. The proper presentati(m, therefore, of these 
records is ordinarily of as much importaiice as the 
facts themselves. 

If, for instance, a tabulated list of figures is being 
considered, or is under observation, and th(»se figures 
indicate the consumption or purchase of a commodity 
or article for a number of months or years, denoting 
frequent increases or decreases, it is a matter of some 
difficulty to get a comprehensive grasp of them, as 
compared to the ease with which the same facts can 
be assimilated if they are presented so as to be 

214 



CHARTS AND DIAGRAMS 215 

readily visualized in the shape of a curve, diagram, 
or chart. 

When totals are merely footed, each conveys 
separate facts, however lucidly arranged; but when 
totals are connected up intelligently in a chart, a suc- 
cession of facts is presented each of which, while it 
retains its particular value and place, is a component 
part of the whole, larger fact that is being demon- 
strated m unbroken simplicity. 

Figures are for recording purposes, and convey 
pictures of weight or size. Many people think of 
these pictures, and not of the actual figures. Curves, 
charts, and diagrams are reproductions of these pic- 
tures, proportioned to a range of vision that makes 
them almost instantaneously intelligible. Before 
figures, weights, or measures were used, these mental 
pictures of bulk were obtained by the ancients by 
crude, but similar, means. Examples of these are 
found to the present day in the terms *^foot," indi- 
cating measurement, and ^* stone," under which desig- 
nation annealed binding wire is still sold. In com- 
mercial usage, *' stone" indicates twelve pounds. 

When figures are put in the graphic form of curves 
and diagrams, not only is there a great saving in the 
time of the reader, but there is the tremendous ad- 
vantage that one can absorb more facts with less 
danger of misinterpretation. It would be to the ad- 
vantage of any purchasing department to present in 
this form all numerical comparatives or fluctuations 
m prices for the assistance of the executives of the 
establishment, and for the information and guidance 
of the department iself. 



fm3 



216 



PURCHASING AND STORING 



Value of Charts to the Buyer.— When very largi' 
purchases are made of some commodity, and particu- 
larly of such things as valuable metals, it is vital to 
good buying that statistics be kept of production, 
consumption, and visible supply, and that these* 
statistics show variations in these items, together 
with fluctuations in prices. Not all purchasing 
agents are interested in expensive metals, except as 
they may serve to indicate the general business con- 
ditions and the prosperity - of the country. Purchas- 
ing agents should, however, be posted— as should all 
business men— on anything which is liable to affect 
commerce and industry. Probably every purchasing 
agent is buying something regarding whicli he should 
have reliable information clearly set forth and, rather 
than depend on a mass of figures, he will find it pref- 
erable to use some simpler means of portraying 
that information. 

The simplest and most generally used form of 
curve is that which indicates fluctuations in com- 
modities. This type is seen frequently in the 
journals and trade papers devoted to the interests of 
some particular product or commodity; it is illus- 
trated in Figures 31 and 32. Usually the advances 
and declines in the commodity in its raw condition 
are shown, but most purchasing agents are chiefly 
concerned with material in its semi-manufactured 
state— for instance, metals in bars and sheets— and 
they must know the exact variations in price of the 
commodity in the condition in which they buy it. 
The periodicals to which a purchasing agent has 
access cannot always be depc^nded upon to give him 





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10 20 10 20 10 ZO K) ZO K) ZO 
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riG. 32. SPOT AND OPTION PRICES OF COTTON FOR TWO YEARS 

This is an excellent method of portraying quantity, because it rep- 
resents bulk m a more forceful way than a line chart 
does. (Courtesy of The Annalist.) 

217 



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218 



PURCHASING AND STORING 



CHARTS AND DIAGRAMS 



219 



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the information he wants in the way in which he 
wants it presented. The necessity therefore arises 
for him to collect this information and convert it in 
his office into the forms in which it will best meet his 
requirements. 

A point which all buyers should bear in mind is 
that almost invariably any cTiange in the price of a 
semi-manufactured article is preceded by a corre- 
sponding change in the price of the raw material 
which enters into it. A chart showing both curves 
would be a valuable aid in determining the psycolog- 
ical moment to make a purchase. By way of ilhis- 
tration — the fluctuations in the price of hides would 
undoubtedly be followed by corresponding variations 
in the price of leather belting. These fluctuations 
would be noticeable, in a lessened degree, in those 
articles in which leather is a small component part. 

Another simple graphic form — used principally to 
set forth quantitative facts — familiar to every per- 
son who follows up such matters, is that which con- 
sists of diagrams with vertical or horizontal parallel 
lines, each of which denotes a certain fact for a 
stipulated period. This form is used mainly for 
showing the production and consumption f»f com- 
modities. It can be used to great advantage in the 
purchasing department in connection with all those 
articles of sufficient importance to wariant the 
preparation of charts. These diagrams are aids to 
buying, since they indicate accurately the exact 
period of the year when consumption is largest, and 
the exact consumption for each period. In some 
cases they are not so well adapted as the line charts 



for demonstrating these features. They are, how- 
ever, superior in some respects, since a variety of 
geometric symbols can be used, and a different 
symbol may be used in connection with each article. 
Another advantage of this form is that these dia- 
grams convey the impression of quantity and bulk 
more forcibly than the curves in a line chart. (See 
Figure 32.) 

The two charts shown here are simply offered as 
suggestions. It rests with each purchasing depart- 
ment, individually, to decide what charts shall be 
prepared. For example, if a curve indicating the 
price of wire nails is kept, it will be found to bear 
an almost exactly parallel relation to the price curve 
of steel beams. Allowance being made for variations 
in production, all other steel products would follow a 
similar source. In the case of large buyers of cotton 
duck, the variation in price can be approximately 
gauged from the price of raw cotton. 

When accuracy is desired in the price curve of any 
article, that curve must be based upon the actual 
prices of the article itself. Approximate prices only 
can be obtained of manufactured articles from raw- 
material price curves. For example, there may be 
an over-production of wire nails, but other indus- 
tries that consume steel may be taking vast quanti- 
ties of raw material, depleting the market and ad- 
vancing the price. Until the over-production of wire 
nails had been worked off, the price of them would 
not advance in the same proportion as the price of 
some other steel products, and consequently there 
would be irregularity for a time. 



220 



PURCHASING AND STORING 



CHARTS AND DIAGRAMS 



221 



li 



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compound Information.— The curve charts referred 
to are of the simplest form, but they can be added 
to so that they will combine additional or compound 
information. When such additions are made, dis- 
tinctive colors should be used for each curve. The 
use of an excessive number of lines on a chart must 
be avoided; otherwise the chart will be complicated 
to such an extent that the very object of its prepara- 
tion will be nullified. 

A two-curve chart can be used to indicate both 
consumption and price at the same time. The cor- 
rect relation between the two can then be clearly dis- 
cerned, and the influence that a variation in one has 
on the other can be readily observed. 

Three-curve charts are particularly useful in in- 
dicating consumption, price and cost. For the pur- 
pose of illustration, let us take the case of a common 
article, such as cotton waste. It is of advantage to 
use this particular example because there is a great 
variation in the quality of cotton waste on the mar- 
ket, and in connection with any such article a com- 
parison must be kept of the results achieved by a 
change in substituting one quality for another. 
Moreover, cotton waste is very generally used, and 
for that reason the application of the principle it is 
desired to convey would appeal to a larger number 
than if I took as an example an article purchased by 
only a small proportion of buyers. It is not to be 
expected, however, that when the purchases of ma- 
terials or supplies are very small, extensive or ex- 
haustive data should be kept. 

Let us assume that the price paid per pound did 



not vary during the months of January, February 
and March, but that in April it was decided to buy 
a better quality. The price curve would immediately 
go upward; but if less waste were used the consump- 
tion curve would go downward. From these two 
curves the actual cost curve would be derived, and a 
graphic demonstration would be obtained of the re- 
sults of the change in the buying policy. An illus- 
tration of this condition is given in Figure 33. I 
would suggest that every purchasing agent keep a 
chart like the one described. This form of triplicate 
chart can be applied to almost all supplies used in a 
plant, and is particularly valuable in keeping records 
of purchases of coal, lubricants, hack saws, files, and 
so on. 





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JAN. 


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MAR. 


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JULY 


AUG. 


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— S''"-' 


,^ 


t— 














r 






^^ 


f. 














































'A = Consumption Curve 






^ 












\ 1 










B •= Price Curve 
,C = Cost Curve 






































































( 1 




















^ 


i 


^Hi-» 







FIG. 33. THREE-CURVE CHART, SHOWING CONSUMPTION, PRICE, 
ANP COST PER MONTH OF COTTON WASTE 



222 



PURCHASING AND STORING 



The use of three-curve charts in connection with 
materials used in production work requires somewhat 
different calculations to illustrate similar results, be- 
cause any variation in production would have a 
greater influence on the consumption curve. It 
would be necessary, in this case, to add a production 
curve. 

I have already advocated closer relations between 
the sales, production, and purchasing departments. 
Buying could be done more intelligently and more 
economically if estimates of future requirements were 
furnished to the purchasing agent as a basis upon 
which he could make his purcliases for future de- 
livery. This is not always done, and consequently 
the purchasing agent is often compelled to rely for 
this information entirely upon his records of past 
purchases. Instances have come to my notice in 
which sales were increased on certain articles, while 
nothing was done to increase the stock of raw ma- 
terial. If a maximum and a minimum have been 
agreed upon for a stipulated sales quota, then any 
great variation from those standards should be re- 
flected in the quantity of raw material carried in 
stock. 

When such provision has not been made, it has 
sometimes happened that requisitions were made on 
the purchasing agent to buy material in quantities 
greatly in excess of the permissible maximum. These 
are features which can all be provided for by the 
use of some form of chart or diagram which will 
practically enforce automatic raising or lowering of 
the stock limits. 



CHARTS AND DIAGRAMS 



223 



Influence of Charts on Buying. — One great value 
to the purchasing agent of the use of charts, is that 
it develops keenness of vision. A few charts system- 
atically kept over a period of sufficient length for 
comparative purposes, with seasons and dates, have 
been known to give a buyer an outlook on the future 
trend of prices almost uncanny in its accuracy and 
foresight. 

When renewing contracts, or when making agree- 
ments that extend over any long period, reference 
to charts is the only scientific way to obtain the 
necessary information on which to form one's judg- 
ment. Also, in such cases, the chart can be some- 
times used with good effect to influence the seller, 
since by it he may show that an expiring contract re- 
sulted in a loss to the buyer, and the latter may be 
able to gain concessions. 

There is another purpose in the use of these charts: 
namely, to demonstrate to the buyer the wisdom of 
contracting over given periods for any stipulated 
commodity. A buyer's obligation to keep a record 
of values has not ceased simply because he has made 
a contract. He should be able to show, if called 
upon to do so, that the contract represented a wise 
expenditure. Even if the facts, when arrayed, show 
that the contract was not wise, but that a saving 
could have been effected by buying in the open mar- 
ket, it is nevertheless well to know this for future 
guidance, and it is sometimes as well for the buyer 
to know that his judgment is not always infallible. 

Scheduling Requisitions by Charts.- -Those con- 
cerns which, from force of circumstances, practise a 



M.lH 



11' Ml 






h 



•I 



^4i^^'^<t 



m> m 



224 



PURCHASING AND STORING 



l^lt 



**liand to-mouth" policy in purchasing, and buy in 
the open market, only for immediate requirements, do 
not have so much need for charts. But for a manu- 
facturing plant that can make up a schedule of its 
requirements over a given period of time, records of 
prices are imperative if the most economical buying 
is to be done. These can be presented by the pur- 
chasing department to the manufacturing depart- 
ment. The latter can then make up the requisitions 
for quantities required, and can, moreover, make them 
up at the times most favorable for purchasing, as 
shown by the price record. 

Even in those cases in which buying is done on a 
** hand-to-mouth'' basis, a record may prove valuable, 
because if the record can show that saving could 
be effected by a different buying policy some means 
may be adopted for putting it into effect. 

Augmenting Buyer's Knowledge of Business Con- 
ditions. — It is acknowledged that the general trend 
of business, and of most prices, can be forecasted by 
the output of the principal product of a country. 
As regards a country like Brazil, for instance, whose 
prosperity depends mainly on rubber and coffee, a 
chart record of these commodities would give 
valuable information to establishments buying or 
selling there. In the United States the situation is 
more complex, because our industries and commodi- 
ties are widely diversified. At one time, the pros- 
perity of the Southern States might have run along 
lines parallel with the condition of the cotton busi- 
ness, but for the whole country it is necessary to 
watch railroad earnings, building permits, bank 



CHARTS AND DIAGRAMS 



225 



clearings, and many other features. However, since 
steel is used in so many lines of business the situa- 
tion can be covered by keeping a record of the un- 
filled orders of the United States Steel Corporation. 

Whatever may be said in favor of the use of 
graphic charts, this fact must not be overlook-ed: It 
is necessary first to ascertain the correct figures from 
our bookkeeping methods before the lines can be 
drawn on the chart. This does not mean that the 
charts are not of value — as I have said before, it is 
decidedly advantageous not to have to digest a mass 
of figures. 

Economical buying is largely a result of keeping 
posted on market conditions, and for this reason it 
is desirable to know the value of graphic records 
portraying these and other features. Personal 
opinion as to the trend of business or prices is mere 
guesswork if it is not founded upon scientific data. 
It does not even deserve to be called speculation 
because the latter is at least based upon some funda- 
mental basic principles. 



in 



CHAPTER XII 

EOUTINE WORK OF THE PURCHASING 

DEPARTMENT 

Disposition of Incoming Documents. — Every pur- 
chasing department receives large quantities of mail, 
including correspondence, quotations, acknowledg- 
ments of orders, invoices, shij)ping documents, cata- 
logues, pamphlets and quite often samples, blue 
prints, and so on. There are also the inter-depart- 
ment communications, inquiries, and requisitions. All 
these must be taken care of in an intelligent manner. 
Some person in the office should be so well versed 
and trained in its routine and methods as to be able 
to segregate all the incoming mail and documents 
and pass them along to the various clerks interested. 

There are many heads of departments who seem to 
think they are neglecting some important duties if 
they do not personally handle everything that goes 



Note: — Acknowle<lg:ement is tendered to Otis Elevator (company, H. 
W. Johns-Manville Company. Warner Sugar Refining Company, 
and Jeffrey Manufacturing Company, for permission to repro- 
duce tlie forms that appear in the following chapters. The 
reader should bear in mind, however, that the forms are used 
to illustrate the methods and means that have been found most 
suitable in the jmrchasing departments of these well-known 
manufacturers. While I have drawn attention to some features 
connected with these forms, in the following chaiiters I have 
confined the treatment to generalities, and have not specifically 
described the routine followed by any of the concerns named. — 

THE AUTHOB. 

226 



ROUTINE OF PURCHASING 



227 



through the department. In very small purchasing 
departments something may be gained by looking 
over all invoices, and all replies to follow up requests. 
In the larger departments, however, some person 
should be made responsible for each division, and the 
documents pertaining to his work should be turned 
directly over to him, since such a system will allow 
the head of the department more time for the larger 
affairs and for management and organization. If 
matters of importance do come up, in any division 
of the work, which need the personal attention of the 
purchasing agent, he should of course attend to them, 
but any questions regarding normal routine work 
should be answered by the person who has charge 
of that particular work. 

Accumulating^ and Recording: Information.— The 
routine work of actually making a purchase begins 
with the receipt of the requisition, but before this 
can be dealt with intelligently certain information 
must be accumulated. These things are just as es- 
sential to the proper conduct of the office work as 
tlie mechanical equipment is. It is necessary to have 
desks, stationery, tiling cases, and other equipment, 
and it is equally necessary to prepare the information 
referred to in previous chapters if the purchasing 
function is to come into play after the requisition * 
arrives in the department. 

I have already discussed in previous chapters the 
character of the information necessary for a pur- 
chasing department, and have suggested methods for 
collecting and recording it. In the alignment of the 
work in the department and the assignment of it to 



228 



PURCHASING AND STORING 



p. 



members of the staff, there are some general prin- 
ciples which must be adhered to. Certain classes of 
information must be accessible to everybody— cata- 
logues for instance. Another class of information, 
such as that relating to sources of supply, is of 
greater moment to the person responsible for solicit- 
ing quotations than to any other member of the de- 
partment. The invoice clerk, for instance, would 
have no use for it. On the other hand, the invoice 
clerk has constant use for certain price lists and trade 
methods of figuring extras on base prices, and these 
are seldom needed by others, although they may be 
required at times in the comparison of quotations. 

For these reasons it is not possible to define a 
routine method for the work of collecting and record- 
ing information which would fit every purchasing 
department. But whenever it is feasible, it is the 
best plan to have a regular bureau, and to place it in 
charge of an intelligent, resourceful, and methodical 
man. In view of the nature of the work, it can be 
conceived that he can render service of exceptional 
value. The following list will give some idea of what 
such a man may do. 

1. He should have charge of procuring, listing, 
•assorting, filing, loaning, and securing the return of 
catalogues. This subject was fuHy treated in Chap- 
ter X. 

2. He may prepare such charts and diagrams as 
are required by the purchasing agent. Many others 
will suggest themselves to him in the course of his 
work. Charts have been discussed in Chapter II. 



ROUTINE OF PURCHASING 



229 



3. He should have charge of all specifications, 
and should maintain a sufficient number of them. If 
standard definitions are in force, as described in 
Chapter II, he has charge of the purchasing depart- 
ment's copy. 

4. He can compile and maintain a record of 
sources of supply, as described — with forms — in 
Chapter III. An additional form is given in Figure 
34; this is used in the purchasing department of 
H. W. Johns-Manville Company. It will be noted 
that approval of a source of supply is given only by 
the general purchasing agent. The reverse side of 
this card has spaces, numbered to correspond with 
those on the front, for recording data connected with 
each source of supply. 



SOURCES OF SUPPLY 


Approval of a source of supply is only to be given by 
General Purchasing Agent. 


Classification 


Material 




NAME 


ADDRESS 


APPROVED 


DATE 


AUTHORITY 


1 












2 
















^ 










1— 




18 




^^* 








19 












20 












21 

























FIG. 34. CARD FOR RECORDING SOURCES OP SUPPLY 

This 8 by 9Vj-i"C'h f-ard, as used by the H. W. Johns-Manville Co., 

has spa(!e for 21 items. The reverse side is numbered to correspond 

with the fate, and is used for recording special information. 



y/ 



i ■ 1 

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] 



i 
/•I 



\-M 


i 


LLIAL^M^M B. 



iH 



V/ 






230 



PURCHASING AND STORING 



5. Such records as it may be necessary to keep re- 
garding quantities purchased over any given period, 
should also be in this man's custody. It is not 
always necessary for the purchasing department to 
compile this information from the orders placed, be- 
cause it is often furnished to the department. If the 
reader refers to the requisition form of the Otis 
Elevator Company, Figure 35, he will notice that at 
the foot of the sheet there are spaces in which th(' 
consumption for each month of the year may be in- 
serted. This is valuable information, because from 



MCO. NO. 



Otis Elevator Company 



DATE. 



.191 — 



CMAN9C TO 
ACCOUNT NO 

cbAsa 



PURCHASINO A9ENT: ruBASK ISSUB ONOKM F»M TMK rOkUOWINO rOM DCUIVERV 



TO WOMKS — DE^ARTMBNT NO.. 

CHANOINO BACH ITCM TO ACCOUNTS INDICATCO IN MAHOIN 




< 
Z 

o 



SMI^ VIA 



^ 



\ 1- 



usco cumukmt 



*-.«• ON OHO*^ 



«•»« OM OHOdf* 



riCf DEO OM 0«OSM« 



•V«CM MA>mA.«i«B 



• ■aNCD. 



.Dl^T- 



A^^AOVCO. ^A^P«OV«0. 



»•* MOAMIl 



PIG. 35. 1H;quisition form 

Showing method employed by the Otis Elevator Company 
of inserting consumption for each month 



ROUTINE OF PURCHASING 



231 



Material. „ 


Material Record 
















ITnl* 










YEAR 


» 


„ 


MONTH 


ManTUIc 


MUwaUkee | MaoviOe 


MUwiukee 


M«iiTiIle 




Milwaiiba. 


J«nn«ry 








l_ 








































J 






" 




= 


B*=J 




DBS 




__ 


^ 




— 


;=, 




=*= 


FebniaiT 


















































































Mtrch 














































































V 








■M 


Li 1 


bl'.i-i 


^ 




u u 


La 


a 


3d 


November i 






















































~ 












1 












December 




riJ 






M. 




1 






J 


em 


- 




















































TOTAL 
























































^ 






-^=^= —'I 



FIG. 36. MATERIAL CONSUMED RECORD 

Tho figures for this record are furnished by the factories, and The 
repord is kept in the purchasing department 

it one can determine whether the consumption is 
greater at one season than another. The figures are 
inserted by the stores department before the requisi- 
tion reaches the purchasing department. 

In Figure 36 is shown the method pursued by the 
purchasing department of H. W. Johns-Manville 
Company for keeping a record of material. An in- 
teresting feature of this record is that it covers a 
period of three years, and the separate figures are 
given for the Manville and the Milwaukee factories. 
The quantities are furnished to the purchasing de- 
partment by the factories, and the sheets made up 
from those quantities. Some interesting charts of 
the more important materials could be compiled from 
these sheets. 

6. The estimate of quantities required in the 
future bears a close relationship to the record of 
quantities consumed in the past. In normal times, 






'IM^ 


1 


1 1 ■ 








PURCHASING AND STORING 



MATERIAL 


PRICE RECORD 


UNIT 


a — 


Not Dclvd. 


Date 


Seller^ 
No 


DESCRIPTION 


Price 


Discount 


Term* 


Authority 









































































































































FIG. 37. PRICE RECORD 

A distinction is made by symbol between prices for ptods actually 

delivered and those for which only quotations are received. The 

sellers' names are listed on tlie reverse side under 

their key numbers 

the latter may so closely approximate tlie former 
that it can be accepted, provided there are no radical 
manufacturing changes. If there are any, or if a new 
class of material is to be procured, the purchasing de- 
partment should be duly advised. In any of these 
contingencies, with this information on record, the 
purchasing agent is in a position to take advantage 
of any favorable market, and in no case is he unaware 
of what the future demands will be. 

7. So much has been said regarding price records 
in Chapter IV, on ** Prices," and in Chapter VII, on 
** Invoices," that further discussion is scarcely neces- 
sary, but I wish to call attention to Figure 37, a form 
that is used by H. W. Johns-Manville Company. The 



ROUTINE OF PURCHASING 



233 



heading, **Unit," is for pound, ton, yard, and so on. 
The sellers are listed on the back, by number. The 
last column, '* Authority," is for indicating from 
what document, or other source, the price was ob- 
tained — such as order, contract, quotation, and so on. 

8. Another class of information is that relating 
to the physical characteristics of purchases. This 
can be collected and compiled from several sources. 
There are, for instance, the inspector's reports, which 
have been referred to in Chapter VI, on '* Delivery." 
Copies of these should always come to the purchasing 
department. There are also the physical and chemi- 
cal tests, and all the reports concerning the action of 
materials during the manufacturing processes, and in 
the form of finished product. 

The outline just given includes the principal 
features of the information that should be secured 
and tabulated. Possibly in some purchasing depart- 
ments other data will be found necessary; the de- 
cision in regard to this point will vary according to 
individual cases and circumstances. The accumula- 
tion of the data is largely a question of the enter- 
prise and initiative of the man in charge of the work, 
and it is also his responsibility not to amass a lot of 
figures and records not pertinent to the department's 
work, of no value to the staff, and not conducive to 
the betterment of purchasing. 

The Requisition.— The requisition is the tangible 
authorization for a purchase; it is therefore an im- 
portant document. From it emanate practically all 
the activities associated with every order placed — 
in fact, it is the basis of the purchasing structure. 



•.H 



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1 ! :<y 



4\ 



f 



234 



PURCHASING AND STORING 



A realization of the importance of the requisition 
renders it apparent that purchasing without it must 
be absolutely prohibited. If this rule is made and 
strictly adhered to, a great deal of confusion, mis- 
understanding, and turrnoil will be avoided. Verbal 
requests to buy anything should not be recognized 
by the purchasing department, even on trivial items. 
It is easy to misinterpret verbal instructions, and a 
mistake made in a small purchase would involve a 
larger proportionate loss than in a large one. If the 
value of the order should be only one dollar, and it 
was found to be a mistake, it might cost more than 
that amount to return the goods, get what was 
actually required, and make the proper a<ljustments. 
There is no visible evidence to controvert any state- 
ments which might be made in an attempt to force 
the purchasing department to shoulder thc^ blame — 
for its own protection, verbal requests must be 
tabooed. 

There may be occasion when some department will 
telephone a request to make a purchase in nuch cases 
as breakdowns, but such a request should be im- 
mediately confirmed by a formal requisition. The 
latter should reach the purchasing departuK'nt before 
the order is written up and mailed to ihv seller, in 
order that, if any misunderstanding has occurred, it 
may be discovered and rectified before any serious 
consequences have resulted. A purchase may be 
made on receipt of a telegram from an outlying 
factory; but if there is any danger of a misinterpre- 
tation, a reply should be wired, specifically quoting 
any sizes or figures that would seem to be open to 



ROITINE OP PURCHASING 



235 



the possibility of an error. The importance of this 
precaution is emphasized by an instance in which a 
wire w^as sent, requesting the purchase for immediate 
shipment of 5,000 feet of 300,000 circular mils 
stranded cable. The order was placed, and shipment 
made before the requisition arrived; then it was 
found that the order read 500,000 circular mils. The 
mistake was made by the telegraph company, but the 
case nevertheless shows the necessity of always 
formally confirming such requests, if errors of this 
kind are to be avoided. 

**Rush*' Requisitions. — So far as possible, **rush'* 
requisitions should be discouraged. There are oc- 
casions, however, when material must be obtained 
without loss of time, even though extra expense is 
entailed. The need may have been created by con- 
ditions impossible to foresee, or somebody may have 
been negligent. Whatever the cause the need is an 
actuality, and must be dealt with promptly. The 
great danger in connection with **rush" requisitions 
is the abuse of the power contained in the word 
*'rush." There is always a tendency — w^hich should 
be curbed — to mark **rush" many requisitions when 
the relative importance of them does not warrant 
their being given first consideration. 

Regulations should be formulated and enforced re- 
stricting the use of such requisitions — otherwise it 
will be found that they will constantly increase in 
number. Sometimes, w^hen the provision for *'rush" 
requisitions is abused, the word **rush" will be writ- 
ten perhaps six times on a requisition, on the theory 
that repetition of this magic word will insure all 



n 



I 



:i j 



236 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



237 



possible haste. The fault often lies with the clerk 
who writes the requisition, and may not be noticed 
by the person signing it. To provide against this 
contingency, **rush" and very urgent requisitions 
could be made a distinctive color — red, for instance. 
The urgency of the case could not then fail to be 
noticed by the person signing the requisition or by 
the purchasing department. 

Fundamentals Necessary. — It is essential that all 
requisitions set forth certain basic facts, that they 
must convey information of definite value and im- 
portance. This information is the following: 

1. All requisitions should be numbered. 

2. They should clearly show the point of origin; 
that is, the department, factory, branch or other 
source requiring the material. While it is not im- 
perative, still it is frequently advisable, to have a dis- 
tinguishing color or letter prefixed to the number 
for each department; this facilitates identification, 
and is of great help in filing. 

3. They must be signed by a properly constituted 
authority. It is not the province of the purchasing 
department to designate the persons authorized to 
draw requisitions, but that department should be 
furnished with the names of such persons. 

4. Quantity, size, and weight, as may appear 
necessary, must be distinctly stated. 

5. A complete, accurate, and definite description 
of the material or article required must be given. 
A request for four feet of sh(>et copper one eighth of 
an inch thick is indefinite and vague; yet many 



such requisitions are received by the average pur- 
chasing department. All requisitions of this kind 
should be returned with a request for fuller informa- 
tion. The width, length, and gauge should be stated, 
as well as the temper. 

6. The purpose for which the material is needed 
should be stated. 

7. The exact, or at least the approximate, date on 
which delivery is required should be given. This is 
a vital item of information, and on this point requisi- 
tions should be explicit and frank. The woes of a 
purchasing department are greatest in connection 
with delivery. There are more complaints in regard 
to this matter than concerning all others combined; 
for the alleviation of this condition as far as possible, 
honesty to start with is of the greatest assistance. 
It is foolish, as regards delivery, to name a date 
ahead of requirements, and almost as bad to name one 
too late. Either fault will have a deterring effect on 
good purchasing. 

Additional Information. — The features enumerated 
are the basic ones which are absolutely essential, but 
there are other points to be considered. Whenever 
possible, requisitions should be confined to single 
items, or at least to material of the same character. 
For instance, several items of brass tubing might 
appear on the same requisition, but if items for lum- 
ber, screws, and other material foreign to brass were 
grouped together, it would be necessary to issue a 
separate order for each. The purchasing department 
would then be put to some inconvenience in passing 




', ■ '>K 



r III 



r 






238 



PURCHASING AND STORING 



one requisition back and forth among the employees, 
and notations would have to be made on it of each 
order number, name of seller, and so on, for which 
there might be convenient space. 

It is possible that in some cases it might be ad- 
visable to state the permissible maximum and mini- 
mum, the quantity in stock, and some other details, 
as I shall explain in discussing the examples of requi- 
sitions which follow. 

Samples of Requisitions.— Figure 35 is th(^ form of 
requisition used by the Otis Elevator Company for 
factory purposes. The great majority of these are 
written up by the clerks who keep the stores physical 
records. When the clerk balances his inventory 
card, on making entries of material taken from 
stores, and finds that the minimum has been reached, 
he immediately makes out a requisition for the 
quantity needed to bring the amount of material 
to the maximum, and passes it along to the head 
storekeeper. The latter signs the requisition— which 
is in quadruplicate— and the original is forwarded at 
once to the purchasing deartment. We have to deal 
only with the original in connection with purchasing. 

The spaces on this form for insertion of maximum, 
minimum, and other features are not primarily for 
the information of the purchasing department, al- 
though the latter gives them due consideration. 
Ordinarily, the amount of material in the stores and 
the amount requistioned should, together, total the 
maximum. When this is not the case thei-e is some 
reason, which is noted in the space headed *'Ee- 
inarks." For example, it may be found that a pur- 



ROUTINE OF PURCHASING 



239 



chase can be effected more economically for some 
larger quantity which would exceed the maximum. 
In such an event, the general storekeeper is notified, 
and on his authorization the larger quantity is requi- 
sitioned. A note to this effect, reading ** Maxi- 
mum exceeded, for purchasing reasons," would ap- 
pear in the space for ** Remarks." The purchasing 
agent also keeps the general storekeeper advised as 
to the time required to obtain various materials. 
This information is used as an aid in determining 
whether the stock is to be maintained on a monthly 
basis, or on a two, three, or six months' basis, or 
even longer. Except for these features, the purchas- 
ing department has only a passing interest in the 
figures inserted in these spaces. 

At the foot of this form, on the left-hand side, is 
a space for the signature of the general works man- 
ager, but his approval is required only when the re- 
quisition is for machinery, shop equipment, or some- 
thing else not under control of the general store- 
keeper. 

Figure 38 illustrates quite a different form of 
requisition. It is used by H. W. Johns-Manville Com- 
pany in their various factories. It will be noted that 
it is drawn by the foreman, and that the storekeeper 
fills in the information as to the amount of stock on 
hand and the estimated time it will last. 

This form is in triplicate and has a stub, which is 
retained by the foreman. The original is held by the 
purchasing department, one copy is held by the store- 
keeper, and the third copy (on the back of ticket 

C" in the illustration) goes to the receiving de- 



<< 









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Id 
U 



S 



FOREMAN'S STUB 



Good* 



K N? 249 



Ooaatity- 

For Um On - 




Rcquiaitioo iMued 



Order Na 



Dcp'tNo.-- ,. 



REQUISITION FOR MATERIALS 
Dim 



K N? 249 



Ordered Fn^. 



Goods 

Qinntity . - 
Dimemioiia . 
Oaality 



B: 



Stock oaiMAd- 
WiU 1*« _ 



To be u«cd for -•_ 

Wanted not btcr tbaa 



If Foreono 






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Order Na 

Dep't No 

Ordered Ptom. 



REQUISITION FOR MATERIALS K ^^ ^49 



Goods 

Ouentitjr — 
Dimcnnoae 
Quilira — r- 



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-Slock oo hud- 
Will Ml ^ 



To be need for — 
Weated oof later I 



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APPROVED 



DITAATMIMT 



240 



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22 -^ 

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00 S 
O 



a 
Is 

fa 

" 33 

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C3 

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ROUTINE OF PURCHASING 



241 



para KMl-IMM 



Warner Sugar refining Company 

EDCEWATER.- N. J. 



REFINERY REQUISITION 



REQUIRED r 
FOR (. 



CHAROP... 



NO. A 



2793 













--^. 











OBPANTMKNT HCOUIWTION- 




Make Order to: 




APPROVED: 


MoMam 








O. K. 








,. ^... 1 











FIG. 40. REQUISITION FORM 

partment. An interesting feature is ticket "C,'* 
where a complete record is kept of all material on 
the order. 

Figure 40 is an illustration of the requisition form 
used by the refineries and factories of the Warner 
Sugar Kefining Company. These requisitions are 
sent to the head office in New York City, where the 
general purchasing agent is located. It will be noted 
that the authorization required in this case is that of 
the manager of the factory or refinery where the 
requisition originates. At the bottom right-hand 
corner is a feature not shown in the preceding ex- 
amples of requisitions. It is provided to enable the 
purchasing agent to put his O. K. on the requisition 



t . ;. 




t 



'f 



242 



PURCHASING AND STORING 



REQ NO.. 

TELEPHONE PURCHASE SLIP 



TO BE CONFIRMED 



uate.. 



-19- 



MATERIAL. 



Requested by. 



Factory. 



Placed by 



With 



Per 



Price. 



F. O. B. 



Terms. 



Delv'y. 



FIG. 41. CONFIRMATORY TELEPHONE REQUISITION 

after the detail work has been done on it, and before 
the order has been written up. 

Figure 41 is a sample of a form used for an 
emergency purpose; I commented on it earlier in 
this chapter. It is not good policy to receive over 
the telephone these requests to purchase, and have 
only a vague memorandum on a hastily secured 
scratch pad. When messages are taken in tliis man- 
ner there will frequently be some omission of an 
essential detail, whereas if one uses a proper form on 
which to make a notation of the message, this can- 
not happen. A formal requisition follows the tele- 
phone request, and this should be marked ** Con- 
firming telephone." 

In connection with all the examples given, there 
are matters of detail which must be settled as in- 
dividual circumstances and preferences dictate. 
None of the seven fundamental requirements, how- 
ever, as already laid down as necessary for every 
requisition, can be neglected. In matters of detail, 



ROUTINE OP PURCHASING 



243 



for example, the requisition shown in Figure 35 does 
not have any space for the order number — an unusual 
omission. The reason why the space is omitted is 
that the stenographer who writes up the order, in 
stamping the requisition, uses a large rubber stamp 
which has on it the word, '* Ordered" and a space for 
the date and the order number. This method has 
one outstanding advantage — the impression of the 
rubber stamp, being very prominent, is clearly seen, 
so that requisitions already dealt with are easily dis- 
tinguished from requisitions for which orders have 
not been written up. 

Routing the Requisition. — In small purchasing de- 
partments, it is possible for all requisitions to pass 
through the hands of the purchasing agent himself. 
In larger departments, they may go over the desk of 
the chief clerk, who may review them. He will prob- 
ably mark some of them as being of sufficient im- 
portance to be dealt with or to be brought to the at- 
tention of the purchasing agent. In still larger de- 
partments, it may be found advisable to let the re- 
quisition clerk take all requisitions first. This 
method would relieve the chief clerk of much detail 
work, as many of the requisitions could be disposed 
of without going through his hands. Those for ma- 
terial for which there is a blanket contract, or for 
which a price has been established, could be passed 
along for the order to be written up. It is taken for 
granted, of course, that all features of the requisition 
are in proper order, that material is correctly speci- 
fied, and that the requisition is signed by some 
authorized person. 



i! 

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PI 



2M 



PURCHASING AND STORING 



The paying teller of a bank would not cash a check 
until he had noticed the date, assured himself that the 
signature was genuine, and made sure that the 
amount demanded stood to the credit of the drawer 
on the books of the bank. A requisition lias some 
features which are analagous to those of a check, and 
these features require examination. For example, 
the requisition clerk must see that the requisition is 
signed by some person who has the necessary 
authority. He should see that it bears the date upon 
which it was drawn; or, what is more essential, the 
date of its appearance in the purchasing department 
should be stamped on it. The specification of the 
material or article must be closely scrutinized and, if 
Bot correct, it must be made to conform to the stand- 
ard practice as explained in Chapter II. The date on 
which delivery is required should be definitely stated. 
It is not sufficient to say **soon," *' quickly," or *'as 
soon as possible." These expressions, used in this 
connection, have no real definite meaning, whereas, as 
previously stated, one of the most important features 
of a requisition is the honest statement of a delivery 
date. If a requisition fails to meet any of the tests 
to which it is subjected, it should be returned to the 
maker for correction. 

Pricing Requisitions. — Having satisfactoiily passed 
the tests, the requisition should be priced. It is pos- 
sible that the material which it covers has already 
been contracted for — if so, all that is then necessary 
is to insert the contract price, delivery point, and a 
notation to the effect that the order is issued **0n 
account of contract dated " 



ROUTINE OP PURCHASING 



245 



In those cases in which competitive prices have to 
be obtained, a form suitable for the purpose should 
be used. Figures 42 and 43 illustrate quite different 
styles of forms for requesting quotations. These will 
serve as a basis for a similar form for any industrial 
establishment. Care should be exercised in the word- 
ing of these forms, to prevent their being mistaken 
for orders. These inquiries for prices are sent to the 
selected sources of supply, as fully discussed in 
Chapter II. If the material is correctly and 



OTIS ELEVATOR COMPANY 

OFFICE OF 
PURCHASING AGENT 



Request 

for 
Quotation 



Please quote ON THIS SHEET your best price F.O.B. 



for the articles specified below and state how soon you can furnish the same. 
Bid on each item separately 00 NOT FAIL TO SIGN THIS BID 




Total 



Signature. 



Address. 



Requisition 



No. 



Purchase Order 



No. 



FIG. 42. REQUEST FOR QUOTATION 
The paper for this form is very thin so that a number 

of copies may be made 



1/ 



i 



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H 






246 



PURCHASING AND STORING 



H 



OOVKM 



ooniwinTV 




H. W. JOHNS-MANVILLE CO. 

MADISON AVE. k. 41A STREET 
NEW YORK CITY 

»••■■•■ ■ ■ ■■■■■►••••••■I — ■■ • •■■■■■■•■■■■»^^ 



INOLIKY 
NO. 



Date 



-X 



Plea*e quote the following mctirial ? O. B. 
State when you can ship. 
State terms of payment. 

Material is required at dettiaation before _ 

This is not an order. 



OtrcA reply to 

H. W. JOHNS-MANVILLE CO. 

PURCHASING DEPARTMENT 
MadUon Ave. & 41« Street 
NEW YOU 
Attentloa ol 



PIG. 43. REQUEST FOR QUOTATION 

adequately specified, replies are usually received very 
promptly; upon receipt, they will have to be tabu- 
lated for comparative purposes. It is possible to 
have the back of the requisition arranged for the 
tabulation and comparison of prices. Such an ar- 
rangement renders unnecessary the use of a special 
form, and whenever it is found necessary to look up 
the quotations received on any requisition, the search 
is greatly simplified if it is possible to refer to tli(i 
requisition itself. However, this is not always pos- 
sible — a special form for quotation purposes ia illus- 
trated in Figure 44. This is a very useful form; in 



ROUTINE OF PURCHASING 



247 



UUktSBx 


COMPETITION SHEET 


* 





Material 
Date 


Last Purchaae 
Date 




BIDDER 










F. O. B. 


TERMS 






























*-- 1 




— ^ 


^. 









FIG. 44. FORM FOR TABULATING QUOTATIONS 

those cases in which the price clerk has not the 
authority to decide on the acceptance of any bid, it 
furnishes a brief, clear and concise method of pre- 
senting the quotations to the purchasing agent or 
chief clerk for decision. It makes it unnecessary for 
either of these persons to wade through each quota- 
tion. All bids should be read very carefully, since 
it is a very common occurrence for the prices to be 
made on a basis different from that indicated in the 
quotation request. This is particularly noticeable in 
connection with the delivery point. Very frequently 
these quotation forms come back with prices named 
at varying f . o. b. points, even though the requests all 
named a uniform specific point of delivery. In these 
cases, the freight from f. o. b. point to destination 
would have a bearing on the quotations. 



-i 









)!.' 



li 



248 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



249 



When a purchase is made h)cally, the prices can be 
obtained by telephone and written on the back of 
the requisition, but it is imperative that the bidders 
should be made to understand clearly what is being 
inquired for, and that the name of the party quoting 
the price be ascertained and noted. A memorandum 
should always be made on th(^ requisition stating th(» 
accepted price and the fact that the order is in ac- 
cordance with the quotation made by telephone by 
Mr. on . If the order is plac(^d by tele- 
phone, or verbally with a salesman, a memorandum 
should be made to that effect, so that when the order 
is written up it can be marked '* Confirming tek^phone 
order'' or ** Confirming verbal order given to your 
Mr. today." 

These points are important. They might seem 
trivial to the casual reader, but in an experience in 
which it was necessary to tdephone an average of 
fifty to sixty orders every day it was found that they 
were vital. Much confusion resulted either if the 
price or the '* Confirming tek-phone order,'' etc., was 
omitted by the price clerk, or if these were over- 
looked by the clerk when he wrote up the order. 
There is the possibility that goods may })e shipped 
out of the warehouse by the seller immediately after 
the receipt of the telephone order, and that then on 
receipt of the formal order an additionjd shipment 
may be made duplicating the first one. Only a rigid 
adherence to the rules laid down can prevent such an 
occurrence. When the work on a recpiisition is 
finished, it is passed along to the order clerk in order 
that the formal order may be written up. Before 



leaving this subject, however, I wish to treat the 
disposition and filing of the requisitions. 

It will have been gathered from what has already 
been said that there is no standard type of requisition 
with respect to either size or wording. For the 
great majority of industrial establishments the most 
useful size is probably about 8V2 inches square. The 
ideal requisition should be arranged with spaces for 
the insertion of the following: 

Checked by Priced by 

Price obtained from contract 

'* ** *' quotation 

F. 0. B 

Order from Order No 



When these spaces have been used for their indi- 
cated purposes as the requisition has passed along 
to be finally disposed of, and when the requisition 
finally completes its journey through the department, 
there is a clean-cut, complete document telling a 
concise and intelligent story. There is no reason 
why proper places should not be provided for the 
particulars indicated. To make the notations in 
various places on the requisitions is a ragged, loose 
method, and much confusion will result if reference 
has to be made at any future time to the document. 

Every requisition should be numbered, and for pur- 
poses of identification the order number must also 
be inserted on the requisition, and the requisition 
number on the order. These numbers connect them 
in such a way that reference from one to the other 
is quick and certain. Because of the importance of 



'4 



Mil 



> I 



V 



250 



PURCHASING AND STORING 



the requisitions, they must be preserved for such 
periods as may be found necessary in each individual 
case. The best scheme is undoubtedly to use post 
binders, retaining the system of numerical sequence 
in filing. Many thousands can be ke])t by this 
method, economically and in a very limited space; the 
requisitions are easy of access and cannot be mis- 
placed. There are a few departments that use the 
vertical filing system; in these cases the purchasing 
department's copy is made of fairly heavy stock in 
order that it may stand the use to which it is put. 
Requisitions should be numbered when printed. The 
spacing should be arranged to conform to type- 
writer spacing, and all copies should register. 

In conclusion it is worth while to emphasize the 
fact that every purchase should be sanctioned by a 
requisition. In the case of verbal or telephone re- 
quests to purchase, requisitions should always be 
exacted. Verbal requests to purchase should be 
sanctioned as seldom as possible. If conditions and 
circumstances do not warrant them, the purchasing 
agent should take a determined stand in the matter 
and refuse to honor them. 



CHAPTER XIII 

ADDITIONAL ROUTINE WORK OF THE 
PURCHASING DEPARTMENT 

Contracts. — ^Before discussing the routine work con- 
nected with the order, which follows in logical 
sequence after the requisition, I wish to discuss the 
subject of contracts, since many orders apply on con- 
tracts which may be in force. 

Practically all industrial establishments of any 
magnitude find it essential to cover part or all of 
their requirements of certain materials with blanket 
contracts. These have been discussed in Chapter V— 
they are, in effect, somewhat similar to a bank ac- 
count. Every time an order is made out to apply on 
a contract, the proceeding can be compared to draw- 
ing a check against an account. Contracts of this 
nature are really arrangements made in advance of 
the actual need of the material. Although it may be 
definitely agreed to take a specific quantity in a 
given time, the actual need and instructions to 
forward are represented by the order, which follows 
on the receipt of the requisition. 

Contracts are entered into by the purchasing agent 
with the known requirements of the factory as a 
basis. The selection of the materials or supplies 
which it is thought advisable to place contracts for, 
is entirely within the jurisdiction of the purchasing 

251 



I I 



r 



.V 



252 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



253 



agent, altliongh any action he may take will probably 
be subject to the approval of the directois or execu- 
tives. It is customary for the purchasing- agent to 
conduct personally the negotiations in connection 
with these contracts, using his knowledge of busi- 
ness conditions, markets, prices, available sources of 
supply, and all other factors which have previously 
been discussed. 

There are many forms of these contracts— one of 
them was given in Chapter V, Figure 15. Another is 
given here. Figure 45. In connection with this it will, 
of course, be appreciated that there are some stipula- 
tions in such a contract which cannot always be en- 
forced, particularly in strenuous times, when the 
sellers have the upper hand to a large extent. In 
ordinary times it is very useful, and is generally ac- 
cepted by the sellers; it has been found a workable 
form of contract by some of the largest industrial 
establishments. Like all other contracts, it must be 
administered in a spirit of fairness and mutual con- 
fidence. Provided this spirit forms a basis for the 
relations between the buyer and the seller, there is 
nothing agreed- to in this form of contract that can- 
not be performed. 



CONTRACT 

between the smith-jonks mfg. co., (the Pur- 
chaser) and 

the (Seller) for famishing '. 

for a period of months, 

commencing 



Material: 

Material shall be 

Quantity: 

Quantity shall be the entire requirements of the 
Purchaser at its factorii. . . now, and for some 

time, in operation \ 

located at 

or at any other point where the Purchaser may 
require the material for its own uses. 

Quality: 

The quality of the material shall be 

and must be satisfactory to the Purchaser. If, at 
any time, material furnished is not satisfactory 
to the Purchaser, and the Seller, upon due notice 
in writing does not forthwith make the same satis- 
factory, the Purchaser shall have the right to 
terminate the entire contract, if it so elects. The 
Purchaser shall have the right to return all un- 
satisfactory goods for credit, at the expense of 
the Seller. Such credit shall be in cash or goods 
covered by this contract, at the option of the 
Purchaser. 

Price: 

The price shall be 

Delivery: 

Delivery at the above price shall be made F. 0. B. 

Deliveries shall be made at such times and at such 
places as the Purchaser may designate by formal 
orders. If the Seller does not make deliveries 
with reasonable promptness the rights of the Pur- 
chaser shall not be forfeited by making purchases 
elsewhere. 



'4. 










' * 



II 



254 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



255 



Terms: 



Terms of payment shall be 



Routing: 

The Purchaser shall have the right to route all 
shipments, provided however, that such routing 
on material sold at delivered prices shall not in- 
crease the cost of delivery. 

Packages: 

Material sold by weight shall be charged at net 
weight not including weight of packages. No 
charge for package, container, cartage or other- 
wise, shall be made unless specifically herein 
agreed. 

Renewal: 

The Purchaser has the right to renew this con- 
tract for a like period of time at the same prices 
and terms. 

Patents: 

The Seller agrees to defend at his solo cost and 
expense any suits brought against the Purchaser 
for alleged infringement of letters patent by 
reason of use or sale of goods covered by this con- 
tract, and to make good to Purchaser any 
damages, costs or money recoveries resulting from 
such suits. 

General: 

This contract is subject to strikes, fires, accidents 
or any cause for delay beyond the control of the 
Purchaser or Seller. 



DATE 



Accepted : 

SMITH- JONES MFG. CO., 



Accepted 



FIG. 45. FORM OF CONTRACT FOR INDUSTRUL PURCHASES 





















CONTRACT RECORD 




CONTRACTOR 

MATERIAL 

DATE 

EXPIRES 

QUANTITY 

PRICE 


SHIPMENTS 


Date 


QUANTITY 
UNIT 


VALUE 


Date 


QUANTITY 
UNIT 


VALUE 












































_ 






















































■ 










. 


































^ 


J- 




^ 




^_ 




— L 


.. ^ 






r^ 




































































































^ 







































PIG. 46. RECORD OF SHIPMENTS AND PROGRESS IN FILUNG ORDERS 

As stated in the delivery clause of the contract, 
Figure 45, formal orders will be issued from time to 
time as the material is required. But as these orders 
are scattered through the binders, in regular numeri- 
cal sequence, with orders for other materials and 
supplies, it is necessary to keep a record of the 
shipments made against the contract. This require- 
ment is provided for by the form shown in Figure 
46. It is important to keep an accurate record of 
these shipments; they should be posted on the con- 
tract record, from the invoices and not from the 









256 



PURCHASING AND STORINd 



ROUTINE OF PURCHASING 



257 



orders. The reason is that the full quantity ordered 
may not be shipped, and in a constantly advancing 
market the buyer might be short of a very large 
quantity. Where these conditions prevail, pressure 
must be exerted to obtain the contract quantity. 

Orders. — The order form is the most important 
document used by the purchasing department. It is 
a legally binding obligation on the buyer if it is 
issued in acceptance of a quotation, or if it is issued 
as an offer to buy and is accepted by the seller. 
While it is unnecessary to employ intricate legal 
phraseology in the text of an order, nevertheless there 
are certain technicalities which must be complied 
with, and which arise in the ordinary transaction of 
the business. 

Some manufacturers attach greater importance 
than others to the insertion of all clauses covering 
the various conditions. This will appear from the 
illustrations that follow. Some also require acknowl- 
edgments, while others will waive these. The car- 
dinal points that must appear on every order have 
been discussed in Chapter V, but the routine work 
of the purchasing department may include some other 
features. For example, if invoices in duplicate or 
triplicate are required, the fact should be stated on 
the order. Some sellers are very tardy in sending in 
invoices, and as promptness in this respect is essen- 
tial to the efficient working of the purchasing depart- 
ment, as well as to the cost, auditing and financial 
departments, something might be included regarding 
this point. These and similar matters must be left, 
however, to individual decision. 



Acknowledgment of Orders.— In regard to acknowl- 
edgments of orders, these are difficult to get in every 
case. Nearly all attempts— no matter what the 
method— to secure acknowledgments are treated in a 
perfunctory manner by the sellers. One scheme, as 
illustrated in Figure 47, is to have a perforated slip 
attached to the order, to be signed by the recipient 
and returned to the buyer. This order form is a 
splendid example of a very complete and well-framed 
order. Mr. J. R. Pels, purchasing agent of the War- 
ner Sugar Refinery Company, expresses himself as 
follows on this subject: 

I have given the conditions printed on the reverse side of 
this order much attention, and find them very useful. I 
am very particular about having the perforated acceptance 
slips returned, signed in such a manner as to make the signa- 
ture binding m law, and I have found at times that this 
acceptance of the order has saved us a great deal of annoy- 
ance, and considerable money in some instances. 

Other schemes for getting acknowledgments are to 
send separate acceptance forms, or to send postcards 
with the orders, but probably these receive less at- 
tention than the perforated slips. A good scheme is 
to send the order to the seller in duplicate; the two 
copies are identical, except that the one to be signed 
by the seller and returned to the buyer bears this 
clause, ** Receipt is acknowledged of this order and 
the conditions are accepted by us. Signed " 

Generally speaking, acknowledgments are not of such 
great moment in connection with orders issued on ac- 
count of contracts, or for orders issued in acceptance 
of a written quotation from the seller. In the former 



'• M 



,1 



i 

ni 



I 







ROUTINE OF PURCHASING 



259 



case, the contract is closed, and the order is really a 
form of delivery instructions. In the latter, the order 
completes the contract. The main advantage in ob- 
taining an acknowledgment in these instances, is to 
secure an assurance from the seller that he actually 
received the order. Acknowledgments are very es- 
sential when orders are issued for material for which 
there has been no previous offer to sell. Because 
there has been no *' meeting of minds,'' there is no 
agreement and consequently no contract. As I have 
already explained, the order is simply an offer to 
buy, and to complete the agreement an acceptance 
from the seller is necessary. 

Figures 48 and 49 are also excellent examples of 
purchase orders. The former has conditions printed 
on the reverse side, while the latter has some condi- 
tions printed at the foot, with a blank space sufficient 
for the insertion of any special conditions that might 
be necessary with certain orders. All these orders 
are in triplicate or quadruplicate. In the progress of 
the discussion of routine work, these copies will come 
in for consideration. 

Writing Up Orders.— In the last chapter I ex- 
plained the active work of the requisition. It has 
also a negative duty to perform, for from it the order 
must be written up. The digression which has taken 
place from the end of the last chapter to the present 
point has been essential to the explanation of some of 
the features connected with contracts and orders. I 
shall now consider the requisition in its completed 
state, and continue with the progress of the routine 
work. The order clerk has only to transcribe cor- 



■ n 



fn 



!.l 






Purchasing Department 



H. W. JOHNS-MANVILLE CO. 

Madison Are. & 41st St, NEW YORK, R. T. 



sMlSS £.""«"»■ 




Date 



ortDtR Ma. 
RCaNak 




•HIP TO 



VI* 



aUANTITV 




H. W. JOHNS-MANVILLE CO. 



F. W. ROWE. 
General Purctietlng Agent 



nTSuna «HI» COMTRACT SUBJECT TO CONDITIONS PRINTED ON BACK MCRtOr 

CONDITIONS 
GUARANTEE 

ROUTE 

Unless otherwise specifled. ship by freight unless express chsrses are approximately the mnei 
MARKINGS 

Purchase order namber must be shown on all packages or ahipment wiu not be accepted. 
SHIPMENT 

Shipment must actually U effected within the time .t.ile.l in Purchase Order, falline In which .* reevre la eumel.^ 
SVrflmB ^ " elsewhere and charge you with ««r J«*i i«urr«l lb. ^o, unle., d..er,«i .h,p».JT^ ^C)^'^ 

Orders subject t« cancellation In case of .inkes. lire or ct,nditlon. beyond our control or affacllng our oiMration'a. 
All material, purch.-ised on weight bas.s. unless otherwise a.r.nged tor. will be .eitlod for at n.t weight, not Includlu 
weight of package or container. "■••■". ""> inEiuauis 

INVOICES 

Bender Invoices In triplicate on date of shipment, and separate inrolce for each order 

Note Shipping weight on Invoice and accompany by bill of l-vding ahow.nis freight rale. Purcbeae order number must 
appear on Invoic^L -w^ «#««• 

DRAFTS 

No drafts for purchases made by this company wlU be honereC 

PACKING AND CARTAGE 

A^JltJ*'^'^" "'" •*,""<"'*'' ""■ Pa'^klng. bosing or carcige unl-ss agreed upon In writing at th. U(ne of purelUM. but 
damages to any mataial not packed to Insure proper protectui. to aar^ w.U be charged to you. I™rc«.«, ma 



PAYMENTS 



I'r' tL'vT"^"'," "•»'"•* ■""' •>'»'J««» «<> e»<* diacount samn win be dikounted 10 days from r«.lpt of correct inTole^ 
If above Instruction are not compiled with. Invoices c.inn. i be passed for payment mTOc* 



RAGS 



Of matlnal deduTnn/'/'"'*"' Z' ""k '.'"""""' '"°'"» "" """' "^' """'*"' "" ">• ""^ " ">• "«>""■ following receipt 
01 material, deducling ! per cent, cash discount al that tlrr.c tn r.u cl.-\>» net ■»«•»'• 

Of a^y m"!rnr^ ".'LT'""' '*"'"r'' ""• '" »">' ""'"^ -"- "* 2^'" "' ■~-^»' -ndfOI. ■Inrolc.. received after Ih. IbC 
Of aiiy mon h will be treated as invoices of such month. Order gi^tn subject to above conditions 

vniess invoices a.e mailed on shipping date, the discount prnod will be calcuUted from date of reeelpfof 

We reserve the r«ht to adjust any Irregularities against suUwquent shlpmenla. 



•na.^'s"'luV,lS'*f!;'m\r'^*'°'*^°" '!''!'"''■''•'"■•'""''''•••' '"' »*'""«' •» »"• "'* •"'» "<" "•■" ""-blsh or any 

U . Xni ;educ.troVa"t:ar:;^7t T.=:fJ^t^ --'ea-ei:: 1-^^ fn^rC '"> " — • 

All wasle m.Tl.rial and oullhrowa to be disposed of by us 
_lour_ac,.eplance al our order consliiutea agreement to above ti^ma. 



FIG. 48. ORDER FORM AND ACCOMPANYING CONDITIONS 
"^he conditions shown below are printed on the reverse side. 

260 



ROUTINE OF PURCHASING 



261 



THE. JEFFREY MFG. CO. 



Not* Thli Numtotr •« lAv«le* 



ORDER No. o 33319 



PURCHASE AND STORES 
DEPARTMENT 



:i 



COLUMBUS, OHIO. 



SHIP TO 



VIA 




MAIL ALL CORRES.ONO.NCt. INVO.CM AND .H.rr.NO DOCUM.NTS PEBT.IN.NO TO THIS ORDER, TO 

PURCHASING OCPARTSSCNT. 

THE JEFFREY MANUFACTURING OO. 

ON MATCRIAL SOLD p. O. •. COLUMBUS TaAfti«»Aa<r.<«>>Au *>..<. ...^-. 

PURCHASE NUMBER MUST S^P^Tr'on ,;;o7c.^"Vd PiTcS^^G^" """ " "*"*• 






RENDER DUPLICATE INVOICE WITH PRICES 



FIG. 49. ORDER FORM WITH SPACE FOR ADDITIONAL CONDITIONS 

rectly to the order form the particulars on the re- 
quisitioiie Every order should be checked before 
inailiiig, and in the case of those of any consequence 
It IS particularly important that this checking never 
he omitted. It is absolutely imperative to check 
these orders for which acknowledgments are de- 
inanded. It will be observed that in the form shown 
in Figure 47 a space is provided for the initials of 
the person who checks the order. The order clerk 
should be responsible for the proper distribution of 
the copies, and should have charge of the purchasing 
department's copy until it is taken over by the fol- 
low-up clerk. 



^-^ 



i 



'f 

4 
■ 

if! 

H I 

% ^ { 

iff 



i 






I 



262 



PURCHASING AND STORING 



It is generally the practice to keep the copy of 
orders in the purchasing department in a post bindor. 
This scheme is used by the Otis Elevator Company — 
actually 100,000 copies are kept with a minimum of 
trouble in the smallest possible space, and they are so 
easy to refer to that it is no more difficult to find a 
copy than it is to find a given page in the Encyclo- 
pedia Brittanica if one has all the volumes in front 
of him. Mr. F. W. Kowe, general purchasing agent 
of H. W. Johns-Manville Company, says, in connec- 
tion with the purchasing department's copy of their 
orders: ** Although this is a loose-leaf form, we have 
recently found it just as safe to handle these as to 
handle cards in an open index file or tray." 

It is sometimes necessary to make changes in an 
order after it has been sent to the seller — most often 
in connection with delivery dates. Written instruc- 
tions on such points must be sent to the seller. An 
excellent plan for taking care of this feature is illus- 
trated in Figure 50; it has so many advantages over 
writing a letter that it should be universally adopted. 
The form, termed an instruction sheet, is identical, in 
size and spacing, to the order form. A copy is kept 
in the purchasing department, and is filed with the 
copy of the order, to which it can be fastened if 
necessary. Since it is of a distinctive color, it can- 
not escape observation when in the file. If a letter is 
written, additional work is involved in making a 
notation on the copy of the order, and this notation 
may sometimes be overlooked. Moreover, the copy 
of the letter gets into the general file, and a record 
of the change in the order is lost. 



ROUTINE OF PURCHASING 



263 



INSTRUCTION SHEET 



jH. W. JOHNS-MANVILLE CO. 



Msditoa Ave. & 41A Street. NEW YORK. 

DAT! 




MO. I 



rCEASE OBSERVE THE FOLLOWING INSTRUCTIONS APTLYINC TO 
OUR ABOVE ORDER 




THIS CANCXU ANY PKEVIOUS INSTRUCTIONS ISSUED ON THIS OROUt 

H. W. JOHNS-MANVILLE Ca 

rimcHAifNc osn. 



FIG. 50. INSTRUCTION SHEET 

This form, as noted, pertains only to orders bearing 

the same number. 

In some establishments there is a rale — usually 
made for financial or auditing reasons— to the effect 
that the copy of the order kept in the purchasing 
department must bear the price of the material or the 
article ordered. It may not always be possible to 
insert the price before the order leaves the office, 
since the seller may be located at some distant point. 
In such an event, it would take several days to secure 
a quotation, and valuable time be lost if it should be 
necessary to get the order placed quickly. Under cir- 
cumstances of this kind a letter can be written giving 
the particulars of requirements, with instractions to 
proceed, and asking the seller to state the price. 
When the latter has done this, a formal order may be 
issued. However, many sellers will not proceed 
without a formal order, and so it is better to send the 
formal order and request that a statement of the 



264 



PURCHASING AND STORING 



price be sent by return mail. Some firms use a form 
for this purpose if they issue many such orders; an 
illustration of su6h a form is shown in Figure 51. 

Vaxiations in Routine Work. — For the sake of out- 
lining a well-defined route for the work of a purchas- 
ing department, I have assumed that the progress of 
that work depends on a succession of individuals 
whose duty it is to handle certain developments as 
the work is carried to completion. It is literally true 
that the purchasing activities must follow a well- 
defined course, and that there is a logical rotation 
for them, but it is not true that there must be a cor- 
responding succession of individuals each of whom 
would handle a different activity or function. 

In some purchasing departments there are several 
men engaged in obtaining prices and telephoning 
orders, and each of them writes up his own orders. 
In other departments the re(]uisitions are divided up 
among several men, who verify them, insert prices, 
make the necessary notations on them, and pass them 
along to boys or girls, who write them up. In either 
of these cases the orders are collected as fast as they 
are written by a clerk, who puts them through the 
final checking and filing stages already described. 
Whatever changes there are in the personal element 
in handling the work, there must not be any de- 
viation from the fixed stages through which the pur- 
chasing function should proceed step by step. 

Purchase Order Record. — As fast as the orders are 
written up — and before they are filed, or immediately 
afterwards — a record of them must be made. This 
record is in the nature of an index of material. An 



ROUTINE OF PURCHASING 



265 




THE J. B. WHITE EIGIIEERING CORPORATIOI 

ENGINEERS CONTRACTORS 

43 EXCHANGE PLACE. 

NEW YORK 



19 



Gentlemen i 

ORDER No.~ 






CONTRACT 



Ple«.e ref.r to our order of the above number and place hereon, in .pace allotted below, 
your very be*t quotation covering the item* included in the order. 

Your* vtry truly, 

THE J 6. WHITE ENGINEERING CORPORATION 

C. N. CHILSON 

Manaom or PuncMA^aa 



By- 



THE J. 0. WHITE ENOINEERINQ CORPORATION 

Gentlemen > 

We quote below our very be.t price* covering the item, mentioned on your order 
of the above number. 



Total Price 




FIG. 51. REQUEST FOR PRICE ON ORDER ALREADY ISSUED 



266 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



267 



1 


Our Order 
No. 


Date 

of 

Ordef 


D«pt. 
Order- 
ing 


SELLER 


Weight or 
Quantity 
Ordered 


MATERIAL 


Charge To 


Price 

Of 

Rate 


















































































































































































■ 


















































PIG. 52. PURCHASE ORDER RECORD 

A separate sheet is used for each kiinl of material. The sheets an* 
then bound in a leather covered binder and indexed with leather tabs 

index of orders under the seller's names is rarely 
necessary, but there are isolated cases where it might 
be advisable to keep one. A record under the name 
of the material, however, can seldom b(» dispensed 
^th — the value of it is evidenced by the constant 
reference to it. The form used can be framed to 
serve many useful purposes; it can be utilized for 
compiling the prices paid for all purchases, also for 
arriving at the total quantities of each article and 
each kind of material purchased. It also furnishes a 
list of all sellers of each article and each kind of 
material. 

Attention was called to this record in Chapter IT, 
and Figure 8 illustrated a suitable form for many 
departments. An additional example is shown in 
Figure 52. The arrangement of this form is really a 
matter of individual requirements. If either of the 
records mentioned in the last paragraph is the more 
important to the department, or if it is desired to 



make one of them the most prominent feature, the 
form can be readily rearranged — as a matter of fact 
it can be made to conform to practically any condi- 
tion. 

Delivery Problems. — ^When material has been pur- 
chased, an order placed for it, and a satisfactory de- 
livery date set, it would seem that the purchasing 
department has practically completed the work con- 
nected with the transaction. This is far from being 
the case, for if the matter were allowed to remain 
in a quiescent state when it had reached this stage, 
every advantage stipulated in the contract might be 
lost to the buyer. Getting quotations and getting 
sellers to accept orders is relatively easy work com- 
pared to getting them to make deliveries at certain 
promised dates. 

There are probably a few purchasing departments 
free from any serious delivery problems, but gen- 
erally speaking, delivery is the phase of purchasing 
in which it is. most difficult to get satisfactory re- 
sults. Complaints against the purchasing depart- 
ment occur more frequently on account of delivery 
questions than from all other causes combined. 

Following Up Orders. — ^It is highly important that 
every order be *' followed up." This means that the 
intent and purpose of the order must be followed to 
their logical conclusion, the contract must be com- 
pleted by the delivery of the goods, and payment 
must be made for them. There are innumerable 
schemes for taking care of this work, and each of 
these is probably somewhat different from the others 
in detail and application. With each and all of 






'•■1 



in 



'1v 



268 



PURCHASING AND STORING 



1. 
2. 
3. 



them, however, the largest factor of success is con- 
sistent, persistent, and unremitting attention. 

For the purposes of the present discussion, every 
order can be placed in one of three classes : 

Ordei^ on which no delivery has been made, and on 
which no invoice has been received. 

Orders on which delivery has been made, but on which 
no invoice has been received. 

Completed orders, on which delivery has been com- 
pleted and invoice received. 

The question at once arises as to the manner of 
separating the orders to preserve these classifications. 
This depends largely on the follow-up system 
adopted, as well as upon the number of orders. If 
there are only a limited number, say a quantity not 
exceeding an average of twenty-five orders a day, it 
is quite possible to keep the iirst two classes in tem- 
porary binders, and to transfer them to the perma- 
nent file when the desired object has been attained. 
This is all the more feasible if many of these should 
be orders for immediate delivery, for then they would 
be sure to be quickly disposed of. On the other hand, 
if the orders are in excess of tlie quantity named, and 
if many of them are for deferred delivery, an extra 
copy of the order must be made and must remain in 
possession of the person in charge of getting de- 
livery, until his work is completed. Then, if the in- 
voice is not received, it will pass along to the invoice 
clerk. 

The latter scheme — which involves the making of 
an extra copy of the order — is necessary because if 
there is only one copy in the department, and it is 



ROUTINE OF PURCHASING 



269 



held out of the permanent file until delivery is com- 
pleted and all invoices rendered, the number so held 
out would reach such large proportions that the 
work of later transferring them to the permanent file 
in proper numerical sequence would be a serious 
problem. The records of delivery and invoices, how- 
ever, must appear on the copy in the permanent file. 
Therefore, it is necessary when delivery is made to 
make this record on such copy. The temporary copy 
can receive a check mark of some description, indi- 
cating that this has been done, and it then will pass 
to the invoice clerk. 

The advantages of segregating the copies to pre- 
serve the threefold classification, are the following: 

1. The permanent file of copies of orders, which 
are usually of thin stock, are subject to less handling 
and are preserved intact. These copies have a per- 
manent location in the department, and can always 
be referred to by any member of the staff, at any 
time, without interference with the work of the fol- 
low-up and invoice clerks. 

2. The clerk in charge of delivery always has at 
hand, for his own particular use, copies of all orders 
he is interested in. This advantage is valuable be- 
cause he is not obliged to refer to the permanent file, 
which may be located at some distance from his desk, 
and at the time he needed one of the binders another 
member of the department might be using it. Or, 
should he not have these copies, he might have to 
transcribe in longhand onto cards the details of each 
order he had to follow up. 



II 



i> 



Ml 



270 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



271 



it 



3. The invoice clerk always has a complete file of 
those orders against which invoices have not been 
received. Many purchasing departments are lax in 
this respect, paying little or no attention to the re- 
ceipt of invoices. If the invoices come in, **well and 
good." If they never come in, still it is **well and 
good." Since the purchasing cycle is not complete 
without the invoice, its prompt delivery should be 
insisted upon. Under this scheme, also, it is possible 
to give a prompt answer to the financial department 
should a request be made for a statement as to the 
value of material ordered but not invoiced. 

The routine of follow-up work really begins at the 
time the order is mailed to the seller; therefore, if 
acknowledgments are to be secured, they come 
within this category. In some purchasing depart- 
ments, a great many city orders are telephoned to 
the sellers. Delivery of some of these is effected 
before the formal confirmation is mailed. In all 
such cases, the orders pass immediately into the 
second class. There are also a great many orders 
which call for immediate shipment; if delivery is 
made at once, these orders would also pass into the 
second class. In both cases cited, the invoices 
should be received promptly; when they are re- 
ceived, the orders are automatically transferred to 
the last class. 

In any scheme for getting acknowledgments and 
delivery, the copy of the order should be used for 
recording any action taken and promises made, be 
cause thus the complete story is kept together. I 
these records are kept on separate cards or sheets, 



FOLLOW-UP 


GOODS RECEIVED 


INVOICES 


Date 


Action taken 


Date 


Quantity 


Rec'g 
Slip 


No. 


Date 


Quantity 


Amount 










• 


1 











FIG. 53. REVERSE OF ORDER-SHEET RETAINED BY THE 
PURCHASING DEPARTMENT 

Showing the scheme for recording follow-up work, receipt 
of material, and invoice work 

a lot of unnecessary work is entailed in trans- 
ferring the particulars of the order to the card. 
Or, if this is not done, then it is constantly neces- 
sary to refer to the order for particulars concerning 
the material, dates, and so on. Paper of different 
colors should be used for all copies of orders — 
then it will be impossible for them to get into the 
wrong channels. » 

The copies of orders retained in the purchasing 
department should be printed on the reverse side as 
illustrated in Figure 53. The question arises as to 
the manner of dealing with these copies. When 
only a small number of orders have to be followed 
up, the copies can all be looked over daily, and 



i 






' I' 







272 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



273 



those which need attention can be selected. If it 
is not necessary to keep them in numerical order, 
they can be arranged in pigeon holes, one for each 
day of the month. But the more numerous the 
orders, the more essential is it to keep them in 
numerical sequence. When they are kept in this 
way, a card for each day of the month can be filed, 
and on the cards only the order numbers need be . 
noted. Each day's card would then indicate those 
orders which needed attention on that day. 

There is one big advantage in securing an 
acknowledgment from the recipient of an order — 
the acknowledgment usually contains the seller's 
promise of delivery, and this is something tangible 
with which to start the follow-up work. Many 
orders are sent out with a delivery date specified, 
but this is often the date set by the buyer as indi- 
cating when he requires the material, and is not 
based on any promise from the seller. 

As explained previously, the great difficulty en- 
countered in this work is that of obtaining satis- 
factory replies or, sometimes, replies of any kind 
from the shippers, but they can be secured through 
persistent effort. It will pay to use discrimina- 
tion — to ask for information only when absolutely 
necessary, and to refrain from making unimportant 
inquiries will help materially. Shippers will (quickly 
respond to such consideration. A large number of in- 
discriminate inquiries would only tend to make the 
shippers resent the uncalled for importunities of the 
buyer, and eventually the former would siinply become 
indifferent and refuse to pay any attention at all. 



The form and manner in which the inqury is made 
will have a large influence in determining its measure 
of success. All city and local inquiries can be made 
by telephone, and the record of them can be placed 
on the order at the time the message is received. 
The inquiries which it may be necessary to mail, if 
couched in brief but courteous language, will bring 
better results than if abruptly expressed. The prin- 
cipal point is to get a reply. A form used with con- 
siderable success is illustrated in Figure 54 — it has 
been found that a very small percentage of inquiries 
of this type have failed to bring replies. In more im- 
portant and urgent cases it is desirable to follow the 
first inquiry with some such form letter as the one 
illustrated in Figure 55. The percentage of these fol- 
low-ups that have failed to bring answers is so small 
as to be almost neglible, and if they, in turn, were 
followed by a specially worded personal letter, re- 
sults could always be secured. The success of all 
efforts of this character depends on the insistence on 
getting replies, properly recording the information, 
and pursuing the matter at the exact time it is neces- 
sary to get information. 

So far the discussion connected with the following 
up of orders has been confined to the matter of get- 
ting promises, but promises are intangible things at 
best. A satisfactory conclusion and the final dis- 
position of the problem is secured only when the 
evidence of shipment is received. The bill of lading, 
shipping notice, or other document, should pass 
through the hands of the follow-up clerk, should be 
recorded on the copy of the order, and then should 



■fP 



I'M. 



274 



PURCHASING AND STORING 



roRM mt (Riv. s^it) 

Follow Up on Material Orders 

▼o Date 








1 
t 


PLEASE ADVISE 8EUOW WHEN 
YOU WILU SHIP MATERIAI. 
SPECIFIED ON OUR ORDER ' 

DATE 


OUR NO 


VOUR NO 


SHOP IMO 




>. 








Otis Euevator Company 

OFFICE 






Reply (do not detach from above) 

DATE 


THE ABOVE ORDER SHIPPED 








FROM VIA 


REMARKS: 








SIONEO 













FIG. 54. FORM USED FOR FOLLOWING UP ORDERS 

be passed along to the receiving department or the 
traffic department, as conditions demand. 

Another phase of the work connected with delivery 
has to do with inspection made at seller's factory 
or point of shipment. This matter has been discusst'd 
in detail in Chapter VI. On receipt of the inspector's 
report, a notation regarding it should be made on the 
copy of the order, as should also reports from special 



ROUTINE OF PURCHASING 



275 



OTIS ELEVATOR COMPANY 



NEW YORK 



puricHAjiNO 

DtPARTMEMT. 



tUMNTM AVCNM 
«*• TWWTV-SXTM STKRT 



Gentlemen: 



Our order 



dated 



covering 



for our 



eontalned the following statement: 



"SHIPMENT TO BE MADE OM OR BBPORE- 



Unle33 advised to the contrary at once, wo will understand 
that shipment will be made on or before this date." 

We have assumed in the absence of contrary advices from you, that you will 
maJce shipment by at the latest, but as prompt shipment is now very 

essential, we wish to be assured that there will be no delays, and you will please 
advise date by return mall when shipment will be made. 

If shipment has been made, send us shipping papers with invoice at once, 
and in the event that you have already dona so, please furnish shipping particulars 
when replying nevertheless. 



Yours very truly, 



OTIS ELEVATOR COMPAHY 
W. E. HODOMAN, 

General Purchasing Agent. 

By 



REPLY 
Mall tO! 

Otis Elevator Company, 
11th Avenue & 26th Street, 
New York City. 



(Do not detach from above) 



-19— 



THE ABOVE ORDER 



SHIPPED.. 



FROM 



VIA_ 



K2MARKS 



SIGNED . 



FIG. 55. FORM LETTER FOR FOLLOWING UP 
MATERIAL SHIPMENTS 



276 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



277 





Ponn V^ (R.V. 3-M6) ■ p^^^^^g ^^p^^^ 

IQ 








OUR P. O. No.. . AS FOLLOWS, 

WILL BE ailPPED FROM 




VU __ •* 

REMARKS: 




PURCHASING DEPARTMINT, 




W. E. HODCMAN, GENERAL PURCHASING AGENT. 




BY 



FIG. 56. PROGRESS REPORT ISSUED TO DEPARTMENTS 

OR FACTORIES 

representatives sent out to secure info rniat ion regard- 
ing the progress of manufacturing and shipping. 

When purchasing is done in a central office for a 
number of factories, the lattm- must be advised of the 
promises secured and the progress made in obtaining 
shipments. The factories must not be left in total 
ignorance regarding their raw material. When they 
have themselves stipulated the date of delivery, and 
the material is moving along to them on a pre-ar- 
ranged time schedule, it is not necessary for the pur- 
chasing department to report that the schedule time 
is being kept. But in every case of delay, and when 
the schedule is departed from without piior instruc- 
tions from the factory, then the factory must be kept 
advised of all changes and developments. A fonn 
for this purpose is illustrated in Figure 56. 

Assuming that delivery has been effected in accord- 



ance with the contract, still the goods may be sev- 
eral hundred miles from their ultimate destination. 
As I have explained in previous chapters, the shipper 
has no responsibility after he has delivered the ma- 
terial to the transportation company at the point 
designated in the contract. It is important, therefore, 
to keep informed concerning the various shipments 
that may be en route. This is the duty of the traffic 
clerk, who must follow up the shipments and get the 
transportation companies to send out tracers when 
necessary. If local purchases are made f. o. b. the 
seller's store, arrangements must be entered into with 
trucking concerns for delivery. This must be done 
in regard to incoming freight on the railroads before 
all questions of delivery can be considered as finally 
settled. 



ROUTINE OF PURCHASING 



279 



CHAPTER XIV 

FINAL KOUTINE WORK OF THE PURCHASING 

DEPARTMENT 

Invoices.— There is great variation in the methods 
employed by industrial establishments in dealing with 
the routine work connected with invoices. This vari- 
ation is frequently caused l)y the difference between 
the systems used by the accounting and financial de- 
partments, with which this section of the purchas- 
ing department naturally is closely allied. 

Any attempt to discuss all these variations would 
involve dipping deeply into the variations in account- 
ing and financial methods, which I cannot do in the 
present treatment. I do propose, however to cover 
the salient points, in order that the reader may be 
enabled to understand fully the functions of an in- 
voice and the nature of the routine work involved 
in putting that invoice into proper shape for pay- 
ment, thereby completing the purchasing cycle. 

It will have been noticed, from the description of 
routine work already given, that prior to the moment 
at which an order is issued, practically all the work 
of the department is based on the recjuisition, but 
that just as soon as an order is issued, all routine 
work is based on the order. In the processes de- 
scribed in the last chapter, the copy of the order had 
been carried to the point where delivery had been 

278 



secured. .It should next be passed along to the in- 
voice department. This scheme enables the invoice 
clerk to have always at hand copies of all orders 
on which invoices have not been received. If, as 
previously stated, copies are not kept segregated in 
this manner, and if it should be necessary to search 
through the general order file to ascertain what in- 
voices were not received, an enormous amount of 
work would be involved, for some purchasing de- 
partments issue several hundred orders each day. 
When one realizes that invoices, under the best con- 
ditions, cannot come in for a day or two, that the 
majority of them do not come for a week or two, 
and that some are delayed even for months, he will 
appreciate what a search through the file would be. 

Sellers should be followed up for invoices covering 
material delivered but not billed, since a bill that is 
received several weeks or months after material is 
delivered is certainly more difficult to check than one 
which is received at approximately the same time the 
material is received. It is essential, also, to the 
proper operation of the cost-keeping and financial de- 
partments, to obtain receipt of invoices promptly. 
The responsibility for getting these lies, clearly, with 
the purchasing department. While it will be found 
neither necessary nor advisable to employ an extens- 
ive system in following up orders for invoices, still 
they should be gone over systematically at regular 
intervals, and delinquents should be notified. Not 
much difficulty will be experienced in this respect, 
but some invoices will fail to arrive unless inquiry 
is made in regard to them. 



280 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



281 



Methods of Recording. — In the first paragraph of 
this chapter I referred to the variation in the methods 
of proceeding with the routine work connected with 
invoices. The first point of contention is expressed 
in these questions: Should a complete record be kept 
of all invoices as they are received? And if one is 
kept, on whom should rest the responsibility of doing 
the work! Some purchasing departments have in- 
augurated such a scheme, and later abandoned it as 
unnecessary. Other departments have transferred the 
work to the accounting department. In still other 
cases, conditions have been reversed, and the work 
of recording has been relinquished by the account- 
ing department and taken up by the puichasing de- 
partment. 

The answer to the first question is that a record 
should by all means be kept, since it is essential to 
right buying. Invoices have a peculiar tendency to 
get lost or go astray, particularly if they are passed 
around from one department to another. A seller 
will call up on the telephone, or write, asking why 
some invoice has not been paid, and the answer may 
be given that it cannot be found. Let this occur with 
the same concern twice, and the standing and rating 
of that purchasing department goes down the scale 
rapidly in the eyes of the seller. It has been empha- 
sized repeatedly that the higher the standard of pur- 
chasing is maintained, the greater is its potentiality 
for successful operation. Every seller is attracted by 
good buying, which includes^ unfailing promptness in 
handling invoices and regularity in paying them. 
This attraction of sellers draws bargains to the pur- 



chasing agent's desk, secures priority, and obtains 
preferences. 

The answer to the second question depends mainly 
on the organization of the establishment and the 
location of the departments. Some large purchasing 
departments are arranged so that they are adjacent 
to the accounting departments, the invoice clerks in 
one being in close touch with those of the other. It 
is then immaterial which department keeps the rec- 
ord. Some executives insist on all invoices going first 
to the accounting department in order that it may be 
able to compile figures regarding the obligations for 
which the financial department must make provision 
and arrange the information concerning the dates. In 
the absence of counterbalancing considerations, for 
the reasons stated in the last paragraph, and also be- 
cause until invoices are finally approved they are 
documents of tangible importance to the completion 
of the purchasing cycle — it may be generally con- 
ceded that they should go first to the purchasing de- 
partment and, if possible, remain in the department 
until approval is completed. 

An example is given in Figure 57 of a form for re- 
cording invoices. This needs little explanation, as 
the headings of the various columns make obvious 
the purpose of each. To secure ready identification, 
all invoices should be numbered seriatim as they ar- 
rive in the department. This record gives the date 
on which invoices are received, as well as that on 
which they are finally passed. If they should be sent 
out of the department for any reason, a record of this 
fact, with an explanation, is also kept. 



!*",■ 



282 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



283 



INVOICF RFCORD Date _ 


Date 


fin* 


Invoice 
No. 


Amount 


Sent out of Dep't. 


Date 

Returned 


Final 
Approval 


For Cash 
Discount 


For other 
Reasons 




• 

















FIG. 57. FORM FOR RECORDING INVOICI<:S 

If an invoice, for any reason, must be sent out of the purcliasing 
department, the fact should be noted on tliis r»?cord 

Preliminary Work. — After the invoice has been re- 
corded, the next thing to do is to scrutinize the date 
when payment must be made to secure the cash dis- 
count. It is essential to ado])t some effective method 
of keeping this date prominently before all persons 
who have anything to do with the invoice. Space 
must be allowed for certifying purposes; it frequently 
happens that an invoice is so crowded with printed 
or written text that no open space is left. In some 
cases the method of pasting a slip on the invoice is 
resorted to; in other cases this has been abandoned, 
and a rubber stamp is used. Both schemes are open 
to objection, but the preference should be given to th(^ 
latter. The main objection to this is that, owing to 
the lack of space on the front, the improHsion must 
frequently be stamped on the back, and then it is 
necessary to turn the invoice over to verify the certi- 
fications. This drawback, however, is less of an ob- 



jection than to have an additional sheet attached to 
the invoice. Figure 58 indicates a good form of im- 
pression to use; this may be stamped on the invoices 
by the clerk who makes the record of them. 

Checking Invoice With Order. — The next step in 
connection with the invoice is to check it with the 
order. This is the logical order of procedure, but it 
IS permissible to change this routine somewhat, ac- 
cording to circumstances. It is better to check with 



FORM 549 



DISCOUNT 



EXPIRES 



FIG. 58. RUBBER STAMP FOR INVOICES TO DRAW 
ATTENTION TO CASH DISCOUNT 

the order first, because, if quantity or price were 
found to be incorrect, there would be no object in 
checking the extensions. The check against the 
order is the main safeguard against paying an in- 
voice twice. Figure 53 illustrates the reverse side of 
the copy of the order kept in the purchasing depart- 
ment. Every invoice must be entered; it is enough 
to give simply the date and the amount. It can be 
readily seen that a second invoice for the same date 
and amount ought never to be approved, but this 
mistake sometimes occurs, for human nature is never 
infallible. 



' »• 



284 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



285 



It will be noticed that the record on the back of 
the copy of the order is arranged for notes on th(» 
follow-up procedure, so that a very complete history 
can be kept on this document with tho minimum 
amount of work. A point which must not be over- 
looked is that the requisition number appears on the 
order, the order number is on the requisition, and th(? 
invoice number is on the order. Consequently, the 
controlling papers connected with any order can be 
obtained at any moment with the least possible 
amount of trouble. 

In the checking of the invoice againsi the order, 
there are some other features which must be watched. 
It must be seen that the description, grade, and so 
on, correspond. If the material is subject to inspec- 
tion before delivery, the inspector's reports must be 
secured and examined to see whether the material has 
passed satisfactorily the requisite tests. When the 
invoice has been completely checked Avith the order, 
a distinctive check mark should be placed upon it to 
show that the process has been completed. 

Checking Invoice with Material Received.— This is 
another feature in which gi-eat variation exists. In 
existing practice, the receiving department sometimes 
reports to the accounting department and sometimes 
to the purchasing department. It would be impos- 
sible to discuss intelligently and to the point, within 
a limited space, the many contingencies that might 
arise from the adoption of (me or another of these 
methods. The purchasing department should cer- 
tainly be informed of the safe arrival of the material 
before finally approving an invoice. I shall outline 



here three simple schemes, any one of which may be 
used to that end. 

1. The receiving department can make a complete 
record of all incoming material on loose-leaf sheets in 
triplicate, as shown in Figure 59. Either small, 
separate sheets — which would correspond with each 
invoice — or large sheets, can be used. If individual 
sheets are used, one copy can go to the purchasing 
department, one can follow the material to the de- 
partment which requisitioned it, and the third can re- 
main as a permanent record with the receiving clerk. 
This distribution cannot be made if a large number 
of items are placed on one sheet and rewriting is 
necessary. , 

2. As illustrated in the form * ' C " shown in Figure 
38, a copy of the original purchase requisition can 
be returned to the receiving clerk, who fills in the 
information and returns it to the purchasing depart- 
ment, where it can be checked with the invoice and, 
if desired, attached to it. The latter feature is in- 
sisted upon by some auditors. The disadvantage of 
this method is that in ordering the material, the 
requisition may undergo changes which would neces- 
sitate altering that document, and the receiving clerk 
must make an independent record for other purposes. 
This procedure entails additional work. 

3. A copy of the order, as illustrated in Figure 60, 
can be sent to the receiving clerk. On this the re- 
ceipt of material can be recorded, and the document 
can be returned to the purchasing department to 
serve the same purpose as the copy of the requisi- 
tion, named in the last paragraph. This scheme 




286 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



287 



I 




NAME. 



ADDRESS. 



Date 



Quantity 



Unit 



FO.I 



Freight Charges 



Description of Matenal 



Received on account of Order No. 



Receiving Clerk 



Inspection Report. 



Signed. 



Inspeclof 



Signed. 



Material received into Stores 



Storekeeper 



Attached to Invoice No. 



Signed . 



Invoice Clerk 



FIG. 59. RECEIVING CLERK *S RECORD OF RECEIPT OF MATERIAL 

One copy ultimately goes to the purchasingMepartment and a second 
copy follows the material to the inspector and subsequently to the 
storeroom. The upper half can be in (juadruplicate, if desired, so that 
the receiving clerk can retain one and forward another to the pur- 
chasing department as a prompt notice of the arrival of goods 



NOTICE: A detailed report of the goods mentioned on the opposite side of this sheet 
must be made in the space below. Partial receipts should be reported on Form 423- 



Date 



How 
Delv'd. 



Quantity 



ToW 

i Point! 



Freight 



Charged to 



Class 




Amount 



Received by. 
Approved 



Approval mtrst be by Mgr. or Supt. or one duly authorized. 



FIG. 60. RECORD OF RECEIPT OF MATERIAX. (REVERSE SIDE 

OF COPY OF order) 

suffers from some of the drawbacks just mentioned, 
in that it is necessary for the deceiving clerk to com- 
pile a record of receipts independently of that made 
on the copy of the order. In either case, all the ma- 
terial requisitioned or ordered might not be de- 
livered at one time, and in that event extra or supple- 
mentary forms of some kind would have to be used 
for the recording of part shipments. 

It would seem that the first scheme outlined com- 
bines all the elements of simplicity, safety, and effi- 
cacy — certainly, from a strictly purchasing point of 
view it covers everything essential — but it is not 
always possible to evade the rules and regulations 
laid down by auditors, for which, from their stand- 




H 



: j^ 



288 



PURCHASING AND STORING 



ROUTINE OF PURCHASING 



289 



point, there are good and sufficient reasons. For ex- 
ample, in some establishments all invoices must bear 
the signature of the party actually receiving the 
goods, a rule which necessitates sending the invoices 
out of the purchasing department for this purpose, 
and getting them back again. 

In all the instances cited, there is another object 
besides the securing of an acknowledgment upon 
the receipt of the material: namely, the sure pre- 
vention of duplication of payments. It is self-evi- 
dent that the receiving clerk's receipt — whether it 
is on a special receiving slip, on a copy of the requi- 
sition, or on a copy of the order — cannot be at- 
tached to two separate invoices. ^Even if, in any 
individual case, it is not the custom to attach these 
documents to invoices, the protection should still be 
positive, because the receiving slip should be can- 
celed in some definite way as soon as it is checked 
with the invoice. In the discussion of stores prob- 
lems I shall be obliged to refer again to the receiv- 
ing department, but what I have already said is 
sufficient, so far as the strictly purchasing essentials 
are concerned. 

Checking Prices. — ^In the case of many orders no 
price appears, or perhaps a discount is quoted apply- 
ing on the standard price list, or simply a base price 
is quoted. This matter was covered in Chapter VII, 
and illustrations were given which showed conve- 
nient ways of keeping these records and price lists. 
An invoice clerk is constantly in need of this infor- 
mation, and he will find that a loose-leaf system, as 
described in Chapter VII, is invaluable. It is im- 



possible to dispense with it in any department that 
checks invoices for more than a few kinds of ma- 
terials and supplies. Incorporated with this price 
record there should be, in an abbreviated form, the 
particulars of each contract in force. These memo- 
randa transcribed from the contracts should be suf- 
ficient to enable the clerk to check the invoice with- 
out reference to the contract itself. 

Classifying and Checking Extensions.— Both of 
these features should be taken care of in the pur- 
chasing department. That department, since it is 
more familiar with materials, and since it has the 
original requisition designating the classification, is 
in a better position than the accounting department 
to do this work. Likewise, in connection with the 
extensions, there is need for a man familiar with 
trade discounts and some trade customs, for fre- 
quently the unit prices are inserted on invoices with- 
out any indication as to whether the unit is a dozen, 
a gross, a hundred, or a pound. Only familiarity 
with trade usages and customs will enable a person 
to make the proper distinctions. Experience has 
proved that the checking of extensions cannot be 
slurred; therefore work of this kind should be as- 
signed to a man who has the necessary qualifications. 
Checking Freight Charges. — On the invoice of 
every article which is received at destination, and an 
which a charge for freight or delivery is paid, this 
charge should appear, in order that it may be prop- 
erly classified. The allocation of freight charges to 
general expense is a loose and inadequate method. 
The freight charges on some materials are equivalent 









i 



290 



PURCHASING AND STORING 



RECEIVED 



QUANTITY 



PRICE 



JOB No. 



F. 0. B. 



FREIGHt 



EXTENSIONS 



CHARGE TO 



CLASS 



FORM 941 

APPROVED 



AMOUNT 



mm^ 



PIG. 62. RUBBER STAMP FOR APPROVING INVOICES 

Each of the spaces should be utilized for the purpose indicated before 
the invoice is finally sent out of the department for payment 

to 25 per cent or more of the invoice price, and if 
these charges did not appear under the same classi- 
fication as the invoice, there would be serious dis- 
crepancies in costs accounting. It is for this reason 
that, in the verification of an invoice, the delivery 
point must be indicated and the amount of the trans- 
portation charges must be inserted. (See Figure 62.) 
Another reason why these particulars should ap- 
pear on the verification of the invoice is that the 
f.o.b. point specified on the order must be checked 
with the delivery actually made by the shipper. When 
these do not harmonize, the necessary adjustment 
must be made with the seller. The receiving clerk 
should always specify on his reports the transporta- 
tion charges on incoming material. The accuracy of 



ROUTINE OF PURCHASING 



291 



these charges can be checked by a member of the 
purchasing department, or, if the establishment main- 
tains a traffic department, it may be done by that de- 
partment. 

Final Approval.— The signature that determines the 
final approval of the invoice converts it into a docu- 
ment of tangible value. Naturally the signature 
should be that of some person in authority who is 
thoroughly familiar with the various checking pro- 
cesses, and who would be able, without too close an ex- 
amination, to detect any glaring mistake in them. If 
the final approval is given in an entirely perfunctory 
manner, it might just as well be pronounced by the 
office boy as by anyone else. The exit of all invoices 
from the purchasing department should be recorded 
on the form shown in Figure 57. 

Securing Cash Discounts.— Throughout the discus- 
sion concerning the checking of invoices, I have as- 
sumed that the checking is done to permit the invoice 
to reach the financial department in time for the 
latter to make the payment minus the cash discount. 
If the verification of the invoice cannot be completed 
in time for the cash discount to be secured, it should 
be sent to the financial department with a request 
that It be returned, after payment has been made, to 
the purchasing department for completion of the ap- 
proval process. When invoices are sent out of the 
department, for this or any other purpose, the fact 

should be noted on the invoice record. (See Fio-nre 
57.) ^ 

The regulations of most auditing and financial de- 
partments will not permit of the payment without 






292 



PURCHASING AND STORINCJ 



ROUTINE OF PURCHASING 



293 



final approval; in such cases, of course, this will have 
to be given. Whether or not it is given is not a mat- 
ter of importance to the purchasing department, be- 
cause, if any adjustment should be necessary on 
account of errors subsequently discovered, approval 
would have to be secured after payment was made, 
whether or not the department had approved the in- 
voice. If, however, business is being done with r(»- 
liable concerns, no difficulty should be experienced 
on this score. I have emphasized this point in prc^ 
vious chapters. The purchasing department is chiefly 
concerned in getting the invoices back in order that 
the verification may be completed. If it cannot get 
them, it will have to make cojnes. 

Securing Credits. — It has been estimated by some 
business men that ^Ye per cent of all invoices are in- 
correct in some particular. This is an exaggeration 
if applied solely to some vital factor of the invoice 
which would change its total in dollars and cents. 
Minor features, such as dates, order numbers, and 
so on, are more frequently incorrect, but inaccuracy 
with respect to these, while annoying, is not so ser- 
ious. Throughout the discussion of the whole pur- 
chasing subject, I have emphasized the importance of 
selecting sellers who use ))usiness methods of ap- 
proved standards. Dealing with such concerns re- 
duces all form of friction and, to a great extent, the 
probability of error, even in invoices, but mistakes 
will occur, and the purchasing department must make 
provision for them. 

The manner in which the jiroblem is dealt with by 
different concerns varies greatly, and many of the 



methods used entail an indefinite delay in the ap- 
proval of the invoice. A plan that often brings quick 
results is to return the invoice to the vendor, using a 
printed form which calls his attention to its inac- 
curacy. And yet this scheme, although widely used, 
has many drawbacks. It is sometimes difficult to get 
some of the invoices back. If they are subject to 
cash discount, this discount may be lost, or a contro- 
versy may arise in connection with it. If the check- 
ing process had been partly done, it would be neces 
sary to cancel these checks and take the stand that 
no invoice had been received. 

Requesting credits from sellers and holding in- 
voices in the purchasing department until they are 
received, is also a very unsatisfactory method, for all 
of the reasons stated, and many more. 

This is a big problem in large purchasing depart- 
ments and it should be looked at in a broad light. 
Special care is necessary because the problem arises 
from comparatively small and petty matters which 
may become of considerable import if not taken in 
hand and disposed of daily. 

The logical method is to debit the seller with the 
discrepancies, and then pass the invoice along to the 
financial department for payment. The adoption of 
this scheme absolutely prevents any accumulation of 
invoices in the purchasing department; it permits the 
cost department to proceed with their work without 
delay, and insures prompt payment of all invoices; 
it also makes a clean-cut issue between the buyer and 
the seller, and defines the position of the former ac- 
curately and positively. 



2M 



PURCHASING AND STORING 



The only element of uncertainty in this method of 
procedure is in connection with the seller's accept- 
ance of the buyer's debit. For this reason, it is im- 
perative that no debit be made unless the evidence 
of its correctness is convincing and unmistakabh*. 
When there is an element of doubt the matter can be 
taken up first with the seller, and an understanding 
can be reached before any definite amount is debited. 
The cases which involve uncertainty are, however, so 
few that they do not occasion any serious disturbance 
or dislocation of the regular operation of the routine 
work. 

There are two forms that can be used for making 



Debit Note No. 
Charge to_ 



Applying on Invoice No 



Address. 



Quantity 



Material 



Amount 



Reason fof Debit 




FIG. 63. DEBIT NOTE APPLYINCJ ON INCORRECT INVOICES 

This form should be made out in the purchasing department whith 
will then render a formal debit memorandum to the seller 



ROUTINE OF PURCHASING 



295 



JOHN SMITH MFG. CO. 

too SIXTEENTH AVE. 
NEW YORK 



DEBIT MEMO. NO. 



Date. 



TO. 



We have debited your account as stated below: 



Your Invoice 



Date 



Amount 



Reason for Debit 



Amount 
of Debit 



FIG. 64. DEBIT INVOICE 

If the regulations of the establishment permit, the purchasing de- 
partment may use this form to send debit invoices directly to the 
seller. The form is in triplicate; the original is sent to the seller, 
one copy is attached to the invoice, and the third remaining in the 

purchasing department 

debits applying on invoices. The first one, as illus- 
trated in Figure 63, is made out in duplicate in the 
purchasing department. The duplicate is retained in 
that department; the original is attached to the in- 
voice and accompanies it to the accounting depart- 
ment, where a formal debit invoice is made up from 
it and mailed to the seller. This method requires 
some duplication of work, because full details of the 
debit must be written up in the purchasing depart- 




296 



PURCHASING AND STORING 



ment, and subsequently have to be copied by the ac- 
counting department. There is no getting away from 
this feature, however, in those establishments which 
absolutely prohibit the making of debits or credits 
by any except the financial or accounting departments. 

If the condition just mentioned is not enforced, a 
form such as that illustrated in Figure 64 can be 
used. This can be made in triplicate — the original 
will be sent to the seller, the duplicate will be at- 
tached to the invoice, and the triplicate will be re- 
tained in the purchasing department. The advantage 
of this method is that it is not necessary to rewrite in 
some other department the particulars of the debit. 

When either of these forms is used, full, complete, 
and explicit details of the charge against the seller 
must be given. They must be such as will enable the 
seller to see clearly the accuracy of the debit and the 
reason for making it. The debits should be numbered 
in sequence in the purchasing department, and these 
numbers should appear on the copy of the order and 
also on the seller's invoice in the space allotted for 
the approval. If the plan outlined above is closely 
followed, the most disagreeable feature in connection 
with checking invoices can be handled without diffi- 
culty and disposed of in a systematic, businesslike 
manner. The purchasing department's files are ke])t 
clear, the cost department has prompt information as 
to the actual cost of materials, the accounting depart- 
ment has no unbalanced accounts with creditors, and 
the financial department can make payments i)rompt- 
ly, taking advantage of all cash discounts. 



CHAPTER XV 

PUKCHASING PROBLEMS AND THEIR 

SETTLEMENT 

How Problems Arise. — Mistakes are made in pur- 
chasing as in every other department of business. 
These can be rectified, and if either party has sus- 
tained a loss, an adjustment can usually be effected 
on an equitable basis, provided the party that made 
the mistake is willing to admit the error. Misunder- 
standings are sometimes more difficult to adjust, be- 
cause each party may honestly think that his version 
is the correct one. I have emphasized, throughout 
the discussion of purchasing, that it is always im- 
portant to bring into agreement the minds of the two 
parties to the transaction, and that when this ''meet- 
ing of minds" is an accomplished fact, there should 
be documentary evidence to show for it. 

Buyers and sellers do not appeal to courts of law to 
settle disputes that involve only trivial amounts. They 
do not do so, in many cases, even when the amounts 
involved are very large, and each party honestly feels 
that the true version of the case is his own exposition 
of it. The problems that actually arise for settle- 
ment are multitudinous. The records of the courts 
have been crowded with them ever since the time 
that such records were first kept. 

The problems cited in the following pages are a 

297 



298 



PURCHASING AND STORING 



PROBLEMS AND SETTLEMENT 



299 



few of the simplest ones. The opinions expressed are 
not legal— they either are based on my own practical 
experience, or have been furnished by reliable author- 
ities. They have this value, that they may be used 
to strengthen the arguments of any one who en- 
deavors to adjust a misunderstanding. 

Patterns and Dies— Few, if any, questions arise 
concerning patterns. If a pattern is furnished by the 
buyer, or if it is made for him by the founder, it is 
paid for by the former and is recognized as his prop- 
erty. The disposition to be made of it depends upon 
his instructions. Why should dies be treated differ- 
ently from patterns? Custom has probably decreed 
that they should be. There is no other reason, and 
the day is coming when the question of dies will be 
treated in as broad a manner as the question of pat- 
terns. 

If dies were always at the disposition of the pur- 
chaser of the forgings, many misconceptions would be 
eliminated. A clear understanding should be insisted 
upon by the buyer, in placing orders, as to the owner- 
ship of the die. If an order is given to a forge con- 
cern which involves making new dies, a price per 
piece is frequently agreed upon, which includes the 
cost of the die. In placing repeat orders, it is ex- 
tremely probable that the same price will have to be 
paid, which means that the buyer is paying again 
for the die. Or if this is not literally true, at least 
he can do very little towards combating the price on 
the second lot if no arrangement has previously been 
made regarding the dies. 

There is always the question of repairs to dies to 



be considered, and a forge concern with not too fine 
a sense of fairness can make the cost of repairs what 
it will. A buyer should ask for a statement of the 
cost of dies separate from the quotation for forgings, 
and it is always well to have a definite under- 
standing on certain points. For example, the buyer 
should know positively whether the dies are subject 
to his call, whether he is to pay the cost of repairs, 
or whether the seller is to keep them in repair. If 
the forging manufacturer keeps the dies in repair, 
the buyer should know whether this arrangement will 
prevent his claiming them. A definite settlement of 
all these questions will save much worry, and per- 
haps considerable expense. 

Purchasing Agent's Authority. — A purchasing agent 
is assumed to be empowered to purchase the require- 
ments of his concern. If, however, he should have 
private instructions not to buy certain materials, or 
not to purchase in excess of a stipulated amount, and 
should act contrary to such instructions, his action 
cannot be repudiated by his principals. The purchas- 
ing agent would apparently be acting within the 
scope of his authority as that authority is understood 
by the trade in general. The private instructions he 
had were not supposed to be divulged to a third 
person. 

Responsibility of Salesmen. — ^Buyers should ac- 
quaint themselves with the responsibility of salesmen, 
and should have definite knowledge that the latter 
are authorized by the concerns they represent to 
make offers and accept orders which shall be binding 
on their concerns. If the salesmen are not authorized, 



300 



PURCHASING AND STORING 



PROBLEMS AND SETTLEMENT 



301 






i 



the principals may repudiate orders either made or 
accepted by them. 

Orders to Agents. — Contracts or agreements en- 
tered into with agents are governed by rules similar 
to those made with salesmen. An ageni, in many 
cases, serves merely to bring the two principals to- 
gether. For example, a purchasing agent might com- 
plete an agreement with an agent to buy certain 
material, and the conditions, when accepted by the 
agent's principal, would complete the contract. If 
subsequently the buyer wished to modify the contract 
by increasing or decreasing the quantity, and agreed 
with the agent with respect thereto, and the agent 
failed to notify his principal, the buyer could not 
enforce the modification. In some cases, however, 
agents are appointed by the principals and are clothed 
with full authority to make contracts. 

Price Lists. — Printed price lists sent to the trade 
in general are not in the same category as a specific 
offer to sell. The latter can be accepted by the buyer 
upon the issue of an acceptance or order — then a legal 
contract is in force; but this rule does not apply if an 
order is issued against a general offer in the shape 
of a trade price-list. Such general offers are subject 
to withdrawal, revision, or change, without notice. 

Refusing to Sell. — A manufacturer or merchant is 
not compelled to give a reason for refusing to sell to 
any party who wishes to buy. There are certain 
classes of business, such as those represented by 
transportation, theatres, hotels, and so on, of a semi- 
public character which are forbidden by law to dis- 
criminate. Outside of those that come under these 



regulations, however, no control is exercised, and it 
is not necessary to assign any reason for refusing to 
sell to, or do business with, a particular person or 

firm. 

Quality.— A dealer or jobber does not warrant the 
goods he sells unless he gives a distinct understand- 
ing to this effect; therefore, in all important pur- 
chases a warranty should be secured. But on the 
other hand, when one buys direct from a manufac- 
turer, whether or not a warranty is given, there is 
always an implied warranty for such goods as the 
manufacturer himself produces. 

Return of Containers. — When there is an agree- 
ment that containers shall be returned, credit is usu- 
ally allowed only when they are delivered in good 
condition at the seller's address. If there is no stipu- 
lation as to the place of delivery of the containers, 
the customary practice is for the buyer to deliver 
the containers to the seller, at the point at which the 
contract originally called for delivery to the buyer. 

Leeway in Manufacturing Quantities. — In making 
large quantities of small parts — particularly some 
screw-machine products — trade usage permits an 
over-run or under-run of about ten per cent if noth- 
ing to the contrary is specified in the order. In all 
those cases, therefore, in which it is important to the 
buyer that he receive the exact quantity specified, it 
should be expressly agreed that no leeway in respect 
to quantity is allowed the seller. 

Solvency of Vendors. — Buyers should be advised 
regarding the solvency of concerns with which they 
place contracts, because a seller who becomes bank- 



302 



PURCHASING AND STORING 



PROBLEMS AND SETTLEMENT 



303 



rupt is released from fulfilling the contracts that he 
has accepted. A rising market might involve the 
buyer in very serious losses, but he would be unable 
to recover any part of them as damages against the 
bankrupt concern, even if it should be liquidated and 
pay all creditors in full. 

Machine on Trial. — ^When a contract is made for 
the purchase of a machine, an article, or any appar- 
atus, on the condition that a test first be made, a time 
should always be stipulated for the test. If no time 
is mentioned, then only a reasonable period can be 
taken to try out the machine. For example, sellers 
will sometimes put machines out on trial without 
naming any definite period, and a few days later they 
will telephone asking for a decision, stating that an 
opportunity exists of placing the machine elsewhere. 
If a decision is not given by the buyer, or if he delays 
returning the machine, he may be compelled to pay 
for it. 

Trial Period. — When agreement is made to pur- 
chase a machine or article provided it proves satis- 
factory at the end of a trial period, and it should fail 
to prove satisfactory, the seller must be formally 
notified before the termination of the trial period. 
Otherwise the buyer may be compelled to i)ay for it. 
His acceptance is implied from the fact that he re- 
tained possession of the goods after the trial period 
had expired. 

Damages to an Article being Demonstrated. — A 
person is bound to use reasonable care in connection 
with another's property which may, for any purpose, 
be entrusted to him, or which may be temporarily iu 



his possession. If an article left for demonstrating 
purposes is damaged as a result of negligence, the 
cost of repairing the damage will fall on the party 
in whose care it was at the time it was injured. If, 
however, any damage results from some flaw or de- 
fect in the article, then the owner is responsible. 

Cancellation of Contract.— If a buyer endeavors to 
cancel a contract, the seller can naturally hold him 
for damages for the attempted breach. The damages 
would probably be assessed on the basis of the profit 
that would have accrued to the seller if the contract 
had not been suspended. A seller is not allowed to 
continue work, or to do anything which would en- 
hance the damages a buyer might be called upon to 

pay. 

Contracts not Specifying Quantity.— Many contracts 
are made by purchasing agents for material for such 
quantities as may be ordered between specified dates. 
Such a contract is indefinite as to both time and. de- 
livery. It does not obligate the buyer to buy at all; 
and conversely, there is no obligation on the other 
party to sell — it is not, in effect, a binding contract. 
If, however, a contract stipulates that the buyer will 
place orders with the seller for all, or half, or part, 
of his requirements, then it is assumed that the seller 
has acquainted himself with the buyer's needs and 
knows the quantities implied by the terms '* whole,'* 

half,'' and *^part." 

Orders without Prices. — A seller can charge only a 

reasonable" price for goods concerning the price of 
which no previous agreement exists. If an exorbitant 
price is charged, it can be contested by the buyer, 



a 



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but the determination of a reasonable price is depend- 
ent upon circumstances. A seller receives an order 
for rush delivery, or he furnishes it on the urgent 
solicitation of the buyer — in doing this, the seller 
may incur unusual expense, or he may have to pro- 
cure the goods at an unusual price. If such is the 
case, a seller will generally inform a buyer, but a 
buyer's necessity may not allow of this loss of time — 
if so, the fact must be given consideration. 

Penalty Clause. — A penalty clause inserted in a 
contract and merely designed as an endeavor to se- 
cure performance of the contract, cannot be enforced. 
A penalty can be enforced only if it is based on the 
measure of the damages which may actually be sus- 
tained because of a breach of the contract. Such a 
penalty is usually termed liquidated damages, and 
should represent the actual amount of compensation 
to which the injured party is entitled. This com- 
pensation would have to be a fair amount; otherwise 
the penalty could not be enforced. 

Accepting a Portion of Goods Oflfered.— An offer to 
sell several items of merchandise when a separatt? 
price is named for each, does not permit the buyer 
to accept some items and reject others, unless a con- 
dition to this effect is inserted in the offer. The whole 
of the quantity offered must be taken, if the contract 
is to be binding. If the buyer wishes to take one or 
two parcels out of a quantity offered, and signifies 
his willingness to do so, this understanding consti- 
tutes a new offer and must have the seller's accept- 
ance before it can be considered that an agreement 
has been reached. 



False Statements in Negotiations.— If a salesman 
secures an order by assertions that are afterwards 
proved untrue, then the order is obtained by fraud. 
If, for example, he should claim that the goods in 
question are used in certain named places, or for cer- 
tain purposes, and it was subsequently discovered 
that these statements were false, the goods may be 
returned to the seller. But the buyer must return the 
goods within a reasonable time after discovering the 
fraud— otherwise the seller will claim that the sale 
was ratified by the buyer's neglect. 

Offers by Telegraph.— Offers to sell made through 
the medium of a telegraph company must be accepted 
in a similar manner, if the contract is to be binding, 
unless the offer contains a stipulation regarding time 
which would permit of an acceptance being sent by 

mail. 

Carbon Copies. — Carbon copies will be accepted as 
evidence. If a seller disputes the accuracy of a car- 
bon copy of an order sent to him by a buyer, the 
seller must be prepared to support his contention of 
inaccuracy by documentary evidence, or by the pro- 
duction of the original order. 

Mistake in Contract. — Neither party to a contract 
is permitted to take advantage of a mistake by the 
other party, if the mistake is palpable and obvious. 
For instance, a stenographic error resulting in the 
insertion of a cipher that makes a price read $100 
instead of $10, would not obligate the party respon- 
sible for the mistake to pay the larger amount, pro- 
vided the hundred dollars could be proved an absurd 
price. 



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I 



Crating and Packing Charges.— If a contract is 
silent on the question of charges for crating or box- 
ing, a buyer cannot repudiate such charges if it is 
customary in the trade to charge them to the buyer. 
The charges, of course, must be fair and reasonable. 
A buyer cannot claim ignorance of trade practices 
and customs as an excuse for non-payment. Should 
there be no established trade custom, the buyer can- 
not be compelled to pay for crating goods, if the 
seller found it necessary to crate them in order to 
place them in a deliverable state at the point of de- 
livery agreed upon. 

DeUvery Point.— If no reference is made in the 
order to the f.o.b. point, the general assumption is 
that the seller has executed his part of the bargain 
by delivering the goods to a common carrier, unless 
it can be proved that the universal trade custom is 
contrary to this practice. 

Holding Back Delivery.— A buyer must take de- 
livery as, and when, specified in the contract. If he 
instructs the seller to withhold delivery for a fixed 
or indefinite time, he is virtually authorizing him to 
store the goods for him, and should they be damaged 
the loss will fall on the buyer. All the seller is required 
to do, is to exercise reasonable care in connection 
with goods so held. 

Shipping an Order in Part.— If a vendor, on re- 
receipt of an order, can ship only part of it, and does 
so, the buyer is not compelled to accept wliat is sent. 
The buyer's order was an offer to buy the whole 
quantity, and if it is to form a binding contract it 
must be accepted and fulfilled intact. ' 



Delivery Prior to Contract Time.— When a contract 
names a specific delivery date, the buyer cannot be 
compelled to accept the material at a premature date; 
if the goods are delivered too soon, he has the right 
to refuse to accept them. But if he does, the seller 
is not released from his obligation to make delivery 
at the time originally agreed upon. 

Delivery Point not Specified.— If there is no express 
stipulation to the contrary, and if there are no cir- 
cumstances which indicate a different intention, the 
point of delivery is understood to be the place where 
the goods are located at the time the order is sent to 
the seller. All orders, therefore, should specify a de- 
livery point. 

Delivery and Conditions beyond Control.— In those 
contracts in which time of delivery is an essential 
feature, it is customary for the seller to insert a 
clause referring to conditions beyond his control, such 
as strikes, fires, and so on. Should a strike last, say, 
one month, the seller could not compel the buyer to 
accept delivery one month later than the stipulated 
time, neither could the buyer force the seller to make 
delivery at the later date. If the stipulated time of 
delivery is not followed, the contract comes to an end. 

Delivered at Destination. — If goods are bought 
** Delivered at Destination," and the seller fails to 
prepay the freight, which is subsequently paid by the 
buyer, the seller is not relieved from the responsi- 
bility for the goods until they arrive at destination. 
If, however, it should become necessary to present 
a claim against the transportation company, the buyer 
would have to do it^ since he paid the freight. 



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l: 



Prompt Shipment. — What does prompt shipment 
mean? So many orders are placed by buyers, and ac- 
cepted by sellers, for ''prompt shipment" that a defi- 
nition of the term is essential, particularly in times 
when the market price is advancing. ''Prompt ship- 
ment" really means that shipment must be made with 
reasonable promptness. Failure on the seller's part 
to live up to this understanding entitles the buyer to 
purchase elsewhere and to claim as damages any 
difference in price he may have to pay. If the ma- 
terial can be readily purchased in the oi)en market, 
the seller cannot be compelled, by process of law, to 
make delivery. 

Transportation Company's Obligation to Deliver 

Promptly.— Many questions have arisen regarding the 
liability of a transportation company for delays in 
transit, but unless neglect can be proved no claim can 
be enforced. At various times traffic congestion has 
delayed deliveries at practically all points reached by 
railroads. If the transportation company does not 
discriminate against one shipper in favor of another, 
and if it uses its facilities for the best interests of all, 
it cannot be held to account for delays. 
^^ Transportation Losses.— ^'hen material is bought 
"f.o.b. shipping point," ownership is conveyed to 
the buyer at that point. As owner of the goods, the 
buyer assumes the risk of loss or damage; in transit, 
fn transporting the goods, the carrier acts as the 
buyer's agent, and any claim for loss or damage must 
be settled between these two parties. The seller's 
responsibility ceases when he has made a satisfactory 
delivery at the place agreed upon. 



Claim against Transportation Company.— An in- 
crease or decrease in the market value of goods lost 
or damaged in transit, does not affect the amount of 
a claim, which must be based on the invoice price at 
time of delivery to the transportation company. 

Credit for Returned Goods.— When goods are re- 
turned for credit, the general assumption is that the 
credit will apply on the account between the two 
parties. But if the buyer obtains no more goods from 
the seller, then the amount of the credit must be paid 
in cash within the credit period recognized as stand- 
ard for such goods. It is taken for granted that 
there is no agreement to take other goods in exchange 
for those returned, or to buy others of a value equal 
to the credit. 

Freight on Defective Material. — Transportation 
charges on defective material are an obligation of the 
seller, irrespective of the delivery point named in the 
contract. This rule applies not' only to the charges 
incurred on the original journey of the material to 
the buyer, but also to those incurred in its return to 
the seller. Since the material is defective, the con- 
tract has not been filled and no proper delivery has 
really been made. The buyer, therefore, is under no 
obligation, but it is customary for him to consult with 
the seller concerning the return of the material, and 
to obtain instructions as to routing, and so on. 

Liability of Railroad Company. — ^When a car is 
loaded by the shipper it is customary for the railroad 
company to stamp the bill of lading, "Loaded by 
shipper. The carrier is not accountable for weight, 
quantity, or condition of property." This statement 




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311 



does not relieve the railroad company from its ordi- 
nary liability for the goods in transit, but if it should 
become necessary to make a claim against the rail- 
road company, the latter could compel the shipper to 
show proof of weight, quantity, and condition of the 
material when it was loaded. 

Receipt for Goods. — In giving a *' clean" receipt to 
a transportation company for goods which arii 
boxed, or which are so enclosed as not to permit of 
examination for defects, the buyer does not waive his 
right to make a claim against the seller for defects in 
the material, should any appear when the boxes are 
unpacked and the material is examined. 

Inspecting Material.— The right to inspect and re- 
ject material, even when it is bought ^'f.o.b. shipping 
point," remains with the buyer until the shipment 
has arrived at destination. If the material should not 
be of proper quality, it can then be rejected, for, if 
this is the case, the seller has not performed his part 
of the contract. 

Terms Printed on Order Forms.— Many order formg 
used by the purchasing agent include a printed clause 
that sets forth the buyer's terms. It is poor policy to 
make any stipulation of this kind, since arbitrary 
terms cannot be enforced. There are so many varia- 
tions in terms that the really good buyer must permit 
flexibility in this respect, and not attempt to insist on 
hard and fast terms of his own choosing. If one of 
the order forms referred to were sent to a seller in 
response to a quotation, and the terms printed on the 
order were not in agreement with the seller's terms, 
it would not constitute a legal contract. 



Terms of Payment.— The terms of credit— some- 
times called period of credit— mentioned in a contract 
begin at the date of delivery. If the delivery point 
is at destination, the buyer, in making settlement, is 
entitled to assume that the date of invoice is con- 
current with date of arrival of the goods at destina- 
tion. A stipulation to this effect should, however, be 
inserted in the contract, since usually the implied un- 
derstanding is that an invoice dates from the time of 

shipment. 

Cash Discounts.— ** Two per cent, ten days," and 
**Two per cent, ten day from date of shipment," are 
not synonymous terms. The latter means exactly 
what it says, the former period is governed by the 
delivery point named in the order. 

No Extra Dating.— Invoices that bear the imprint, 
or have terms stated on them, reading "No extra 
dating," require that the bill be paid at the termi- 
nation of the discount period. For instance, *'Two 
per cent, ten days, no extra dating" means that the 
invoice must be paid in ten days. 

Cash Discounts and Freight Allowance. — When 
goods are sold subject to a cash discount and a freight 
allowance, the allowance must be deducted before the 
cash discount. The freight allowance comes in the 
same category as any other allowance or trade dis- 
count. Any deduction of this nature would be sub- 
tracted from the invoice before the cash discount was 
deducted. 

Terms on Invoices. — *'No anticipation allowed" is 
a term sometimes used on invoices, although it ap- 
pears very seldom. The intention, when it is used, 



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I 






is to prevent the buyer from endeavoring to secure a 
larger cash discount than usual by making payment 
before the date agreed upon. 

Lost Invoices. — Loss of an invoice in the mails docs 
not release the buyer from the obligation to pay for 
goods within the specified contract time. By properly 
addressing the invoice, affixing the necessary stamps, 
and mailing it, the seller has completed all that he is 
compelled to do; the post office really acts as agent 
for the buyer. If the contract entitled the buyer to, 
say, five per cent cash discount in ten days, he would 
have to pay within ten days from the time the goods 
were delivered, even if the invoice were lost. 

Settlement of Debit by Part Payment. — When a 
creditor accepts, in full payment of a debit, a smaller 
sum than the actual amount of the debit, that debit 
is not completely liquidated, and he can still collect 
the balance. In all cases of this kind, there nmst be 
some consideration in addition to the payment. For 
instance, the payment may be made, and settlement 
may be effected in consideration of the payment being 
made in advance of the due date of bill, or in con- 
sideration of there being defective material or dam- 
ages. Stipulation should be made to this effect. 

Time of Payment. — A buyer may withhold payment 
until delivery is made by the seller at the point 
agreed upon. If there is a credit period, then pay- 
ment can be withheld until its expiration. The pay- 
ment of freight by either buyer or seller does not 
affect this question. 

Credit Period. — When a contract is made in whicli 
no Deriod of credit is mentioned, the seller may de- 



mand payment on delivery. The buyer may not 
plead, ''Trade usuage or custom generally allows 30, 
60, or 90 days.'' Possibly the seller may not con- 
sider that the buyer's credit warrants the risk en- 
tailed in allowing him the usual period in which to 
make payment. When purchasing on a credit basis, 
the buyer is bound to keep his credit good. 

Payments. — If a debtor owes several amounts to 
one creditor and makes a payment, specifically stating 
that it is to be applied on a certain item, it must be 
so applied. The creditor may not accept the payment 
and then apply it against some other item, even if 
payment for that item is overdue. If no stipulation 
is made by the debtor when he sends a remittance, 
the creditor may apply the payment in whatever man- 
ner he pleases. 

Date of Invoices. — It is a common practice of sellers 
to date all invoices the day shipment is made, irre- 
spective of the point of delivery. Delivery and pay- 
ment are concurrent conditions in every contract, 
unless a statement to the contrary is made. There- 
fore, in all cases in which the contract calls for "de- 
livery f.o.b. destination," the invoice is antedated if 
it bears an earlier date than the time on which the 
goods reached their destination. Very little attention 
is paid to the dates of invoices that carry no cash dis- 
count. The above point is worth remembering — it 
might be important in instances in which goods took 
several weeks in transit. 



RAW MATERIAL AND SUPPLIES 



315 



if 



CHAPTER XVI 
KAW MATERIAL AND SUPPLIES. 

A Form of Wealth.— The acquisition of raw ma- 
terial and supplies for an industrial establishment is 
an investment made with a specific object in view. 
It is not an aimless exchange of one form of wealth 
for another. The property purchased is not supposed 
to lie dormant; although it may be at rest tor periods 
of varying lengths before becoming an active and 
essential part of the manufacturing process. 

All forms of wealth must be guarded, controlled, 
cared for, checked, and kept in such shape that the 
quantity possessed can be readily ascertained. An 
example of wealth in its commonest form is money; 
special institutions— banks— exist for its safekeeping 
and for facilitating its transfer between parties hav- 
ing commercial transactions. Conservation of natural 
resources and tables concerning them, the taking of 
censuses, and statistics regarding health, are other 
forms of controlling and recording wealth. 

The property acquired as raw material for con- 
version into the finished product of a manufacturing 
establishment takes the form of bulk. It needs space 
and storage capacity for its proper conservation, for 
protection against physical depreciation and for dis- 
posing of it in accordance with pre-arranged plans. 

314 



Material possessions, whatever their nature, are 
liable to depreciate in monetary value; conversely, 
they may appreciate. While the latter is desirable, 
it is not a primary consideration in accumulating the 
raw material and supplies for manufacturing pur- 
poses. Depreciation in cash value, naturally, is not 
desirable while the goods are at rest in the stores, 
or during the period of their conversion into the 
finished product, and foresightedness in purchasing 
can, to a large extent, secure protection against it. 

In discussing storage problems, many writers argue 
that there is depreciation in the value of material 
during the period it is carried in the stores, because 
of the various factors of expense connected with 
handling and storing. This is not literally true. 
These factors add to the cost, but they do not de- 
preciate the value. This additional cost must be 
absorbed in computing the cost of the manufactured 
product. Now, as all expenses, all effort, and all out- 
goings of every description must in the last analysis 
appear in the cost of making and disposing of a 
product, and as the primary object is to keep these 
costs at the minimum, it is apparent that storage prob- 
lems are of considerable economic importance. 

Cost of Storage.— Due to the fact that storage con- 
siderations vary tremendously with the product, the 
location, the length of the quiescent period, and other 
conditions, there never can be any hard and fast 
rules concerning the cost of storage as an economic 
proposition. The permanent investment — that is to 
say, the cost of construction of the building— is a 
factor of some magnitude if the space occupied for 



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11^ 



storage purposes is large and is located in an expen- 
sive section of a city or other congested district. 
Such a condition may well-nigh prohibit the utiliza- 
tion of any large area for this purpose. If space is 
curtailed for this reason, the storeroom itself may 
readily acquire a congested condition, with all thr 
accompanying inconveniences of handling and stor- 
ing. Only one result is possible where insufficient 
facilities exist— an additional expense. It often means 
that material must be handled more frequ(mtly than 
it would if ample facilities existed. Lack of space 
and the extra handling involved adds materially to 
the cost and may cause damage to the goods. 

An investment in equipment is also necessary. This 
equipment is both fixed and movable, and is also 
affected by space conditions. With an ample area 
the material can be moved freely, easily, quickly, and 
at less cost than in a crowded storeroom. In figuring 
storage costs both forms of investment must be taken 
into the calculations, with the attendant interest 
charges and the depreciation charges on building and 
equipment. 

The interest charge on the money invested in ma- 
terial and supplies is a factor in storage costs which 
cannot be determined accurately. Credit periods 
obtained by the purchasing agent vary greatly and, 
in some cases, it may be possible that the material 
will have passed through the stores and be under 
manipulation in the shop before any moiKiy is dis- 
bursed in payment. There is of course an invest- 
ment and a corresponding interest on all material 
in the shop, and this continues until the product is 



finally disposed of; but the present discussion is 
limited to the withdrawal of the material from the 
stores for use in production work.* Other material 
may be paid for even before it arrives at the factory. 
Strict accuracy in obtaining costs would necessitate 
the determination of the actual cash outlay on each 
article for the exact time which lapses between the 
payment and the movement of the goods out of the 
stores. 

It is possible to determine accurately the items of 
general burden and overhead connected with cost of 
storage. Salaries and book-keeping expenses, wages 
incurred in receiving, handling and delivering, and 
also the insurance expense item, are generally pos- 
sible of exact determination. 

Factors which Reduce Values. — ^Depreciation in 
money value has already been alluded to. Good buy- 
ing should reduce this to a minimum; but reduced 
values will occur sometimes from this cause in spite 
of the precautions taken in buying. If the market 
price of a material should decline during the storage 
period, and the finished product is largely composed 
of this material, it is extremely probable that there 
would also be a decline in the market price of the 
finished product. 

In many cases, deterioration in the physical char- 
acteristics of materials in storage need not be con- 
sidered, but in some instances there is a more or less 
intangible loss of quality. Perishable goods, as 
usually designated, are not often met with in manu- 



* For a discussion of stores hnndlinp from the. cost standpoint, 
see Industrial Cost Finding, Vol. 5, Factory Management Course. 



-y. 



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llf 



facturing establishments; but semi-perisliable mate- 
rial, such as paper and rubber goods, are liable to 
deterioration, and many other materials nmst have 
protection against rust and weather conditions. 
Also some materials suffer from abrasion in handling. 
While great care may be taken to prevent deteriora- 
tion from these causes, some loss in value may occa- 
sionally take place. 

Industrial storage problems do not include the 
bugbear of the retail merchant, who may find himself 
faced with a sudden change of fashion and fancy 
which may render much of his stock of little value. 
But there is a somewhat parallel pitfall in the fact 
that new discoveries, or processes, or developments 
in manufacturing may necessitate an improvement of 
the product, and whatever quantity may be in stor- 
age may become obsolete or partially so. The danger 
from this cause is naturally much greater in manu- 
factured goods than it is in the raw materials. This 
risk of evolutions, however, does not often come so 
suddenly that one cannot ''get from under" without 
any serious loss. 

The Great Stores Problem.— An active industrial 
establishment has an insatiable^ maw for raw material. 
It consumes it without cessation. The general store- 
keeper knows that he must provide for the demand, 
that there may be neither let nor hindrance in the 
factory operations. Knowing the importance of this 
— knowing the imperative necessity for maintaining 
a supply in unbroken continuity— he could play safe 
and always have on hand such a great sufficiency 
that would take care of any situation or any con- 



tingency. No good storekeeper would do this, how- 
ever, for he would consider the economic factors that 
continually add to the cost, and the economic and 
physical factors which may degrade the value of the 
goods under his charge. 

The element of time is the one which forces 
itself to the attention of the storekeeper. A banker, 
when he has more cash on hand than he requires for 
current needs, puts every dollar above the established 
safety mark out to work for him. The storekeeper 
also has a safety minimum, and he too endeavors to 
put into active service as much of his surplus as 
possible. This, as already explained, is because time 
is constantly working against him and is increasing 
the cost of all the material in storage. 

Time is the great storage problem. Time is work- 
ing against values twenty-four hours a day and every 
day in the year. There is only one possible way that 
time can render a service of a favorable character to 
the storage problem, and that is through a change in 
market prices which might appreciate the intrinsic 
value of the material during the storage period. 
From a strictly storage point of view this factor 
cannot be considered, — at least not from an economic 
standpoint. The only true way for the storekeeper 
to base all his calculations is on the economic factors. 
These can be established and if the combined judg- 
ment of the purchasing and production departments 
decrees a purchase in excess of the maximum set by 
the storekeeper, these two departments must set the 
storekeeper's bill of costs against the appreciation 
they hope to gain. 



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Profits in Storage. — While refusing to consider 
profits or appreciation in values from the store- 
keeper's point of view, ther^^ are nevertheless some 
profits in storage, although ])asic cost kec^ping prin- 
ciples do not and can not sanction an assumption of 
a profit in the storage function. From the inception 
to the final completion of the manufacturing process, 
costs must follow a well-defined and regulated course; 
and as the accretions follow one another in their 
proper rotation, the cost of storage must take its 
appointed place, ignoring any question of apprecia- 
tion in values. 

In view of the remarkable advances in the prices 
of nearly all raw materials during recent years the 
question may be raised as to what becomes of the so- 
called profits in storage. It has been quite possible 
for a concern to inventory 100,000 pounds of steel at 
a price of two dollars per hundred pounds, and a 
year later inventory the same quantity at four dol- 
lars per hundred pounds. It would seem at first 
glance that here was a profit of two thousand dol- 
lars; but this is far from being the case, unless during 
the interval between the inventories the price of all 
incoming steel had been at the figure prevailing when 
the first inventory was taken. This is an impossibL; 
condition in the advancing market such a change in 
price would indicate. The amount of steel in tlie 
stores when the first inventory was taken would be 
absorbed into the manufacturing costs at the pric(^ 
paid for it. All shipments Sf steel coming into the 
stores would likewise be absorbed at the advanced 
prices paid for each respective shipment. There re- 



mains, then, only the last 100,000 pounds which may 
have come into the stores at a price of $3.50 per 
hundred pounds. On paper this would show a store's 
profit of $500 if the inventory were figured at market 
prices. Should this be the case then all outgoings 
from the stores from date of inventory must be 
absorbed into manufacturing costs at the inventory 
prices, otherwise serious descrepancies would occur. 
Theoretical profits may be figured in the operation 
of the stores of an industrial establishment, but in 
practice a credit balance cannot be transferred from 
the stores to the profit and loss account, although it 
might be done in the case of a supply house, a dealer, 
or a jobber. In a manufacturing establishment the 
balance sheet should reflect the activities of the pur- 
chasing agent and storekeeper, but even favorable 
action by them might be counteracted by a stationary 
or decreasing price for the finished output of the 
factory. 

Safe and Sane Storekeeping.— Too much worrying 
about moderate price fluctuations is apt to destroy 
good storekeeping. The fundamental economic fac- 
tors may be lost sight of, and the luxury of over- 
stocking may be indulged in, or it may result in the 
reverse condition of a shortage with all its attendant 
evils. From the storekeeper's point of view, there- 
fore, the only rational, safe, and sound policy is to 
ignore these variations and allow the purchasing 
agent to deal with the problems of price fluctuations 
and market conditions. For a storekeeper of an 
industrial establishment to commence pondering 
whether market conditions warrant stocking up on 



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323 




one thousand or ten thousand pounds of copper bars 
is dangerous. 

Scientific rules can be laid down for determining 
the maximum and minimum quantities to carry in 
the stores, and the storekeeper should adhere rigidly 
to these rules. It is purely a problem of internal 
management, and external conditions must not be 
allowed to influence or interfere in the determination 
of the limits. When these limits are set in botli 
directions, then other factors may properly be takc^i 
into consideration. When it becomes necessary to 
question the advisability of exceeding or curtailing 
the safety limits set by the inexorable demands of 
the production department and the economic factors 
connected with good storage, then the storekeeper 
may be called into consultation to set forth these 
factors as an aid and assistance in arriving at a 
decision regarding tlie departure from the rules. 

To Store or Not to Store. — This is not a new prol)- 
lem, but it is a problem which is attaining a new 
importance. The significance of the question has 
recently been rapidly and forcefully compelling the 
attention of concerns which buy for manufacturing 
purposes, for resale purposes, for future distribution 
in any form, or for consumption. Unobtrusively 
perhaps, but none the less surely, the issue is pent'- 
trating every activity which involves the retention 
for a long or short period of materials and supplies 
in any form. 

The new importance of the subject is largely bi'- 
cause of better methods of figuring costs and a better 
realization of these costs in so far as the material in 



the stores is affected. Probably the matter of storage 
costs has been brought more prominently to the front 
by the abnormal market conditions which have pre- 
vailed during the past few years. 

A '* sufficient unto the day" policy has brought 
some rude jolts to many manufacturing establish- 
ments. It is only necessary to look through the 
technical and trade periodicals of recent times to 
note the tales of woe of industrial concerns forced to 
suspend or curtail operations because of a shortage 
of coal or some other essential commodity or material. 
Mere price fluctuations do not create shortages except 
as they may be allowed to influence the buying or 
storage policy of individual cases. The question is 
deeper than just one of price. Lack of labor, car 
shortages, embargoes, and other factors have all 
brought the storage problem prominently to the 
front, and all of these have had their influence in 
causing a deeper study of storage costs, and conse- 
quently of the problem of whether to store or not to 
store. 

Extremes of the Storage Problem. — Available stor- 
age space and other physical conditions, and also 
financial considerations may compel the adoption of 
a middle ground or neutral policy, but unhampered 
by these restrictions extremes are apt to be indulged 
in in times of stress. On the one hand is the store- 
keeper alarmed by tardy and deferred shipments, co- 
operating with a purchasing agent who is also 
alarmed but for a different reason, that of rapidly 
rising prices. This combination may develop wild 
buying and storing, which is merely speculative or 



324 



PURCHASING AND STORING 



perhaps is consummated to secure peace of mind for 
the storekeeper and purchasing agent. 

The other extreme is illustrated by a too compla- 
cent attitude of both the storekeeper and purchasing 
agent, resulting perhaps in hurried purcliuses from 
warehouses at prices so much higher than those pre- 
vailing for mill shipments that the storage costs are 
exceeded many times. Storage problems cannot be 
solved by chance or impulse, they are a matter of 
cool, calm calculation of relative advantages and dis- 
advantages. 

Psychological Factors in Storage.— For its effect on 
the worker there is nothing that is quite equal as a 
stimulant to productive labor to the knowledge that 
there is an abundance of material ahead upon which 
to work. Noting daily the dwindling pile of material 
or the inability to get freely what is needc^d from the 
stores, the workman will slacken his efforts, perhaps 
unconsciously. 

As an illustration of this watch any laborer shovel- 
ing a pile of sand. As long as there is plenty, he will 
work with energy, but as the pile diminishes his 
energy also diminishes. Drop a fresh pile, and his 
energy seems to take on new life and vigor. 

Some concerns have allowed their taxes to influence 
the storage problem. Alarmed over in<?ome and 
threatened excess-profits taxes, they have permitted 
themselves to invest part of their profits in stored 
supplies rather than to have the amounts appear in 
the profit and loss or surplus account. To (?vade suc- 
cessfully the real or threatened impost, this policy 
must be continued indefinitely from year to year; 



RAW MATERIAL AND SUPPLIES 



325 



and when all the risks of storage are taken into ac- 
count and a close estimate compiled of the cost there 
can only be some isolated instances where such a 
venture could be considered as good business. 

Standardization of Supplies. — Much useful work 
in the standardization of supplies can be effected 
through the storeroom. In the previous discussion 
of purchasing, emphasis was laid on this subject. 
The storeroom can also have a hand in bringing 
some of the problems to a satisfactory solution. The 
storeroom clerks come into physical contact with the 
various supplies, and a multiplicity of these ranged 
alongside of each other m the storeroom is convinc- 
ing evidence of the need for reform. Some small 
tools come Under a need for standardization also. It 
is not uncommon to find that several kinds of hack- 
saw blades are being used for similar work, because 
one department may not know that another depart- 
ment is requisitioning a different make. Such things 
as brooms, brushes, cotton waste, and so on, are 
peculiarly susceptible to duplication. 

It is not economical to carry in stock several vari- 
ations of articles of a similar nature when possibly 
the requirements of all departments and the whole 
establishment could be satisfied by a lesser number 
of styles. Having physical possession of these styles 
and having them arranged in adjacent receptacles, it 
can be demonstrated that some of them can be dis- 
pensed with, saving storage space and the expense 
of carrying a larger number of articles than abso- 
lutely necessary. 

Almost innumerable instances could be cited of 



ill 



326 



PURCHASING AND STORING 



RAW MATERIAL AND SUPPLIES 



327 



"I 






' 



. I 



li 



the duplication of supplies kept in the stores. The 
practice pervades all sections of some establishments 
and is particularly noticeable in connection with office 
supplies. Many different kinds of inks, pencils, car- 
bon papers, and so on, are purchased when the re- 
quirements of all departments, possibly, could be 
satisfied with one variety. If a store is carrying 
three varieties of an article with a minimum of one 
hundred units of each, it is quite possible that by 
carrying one class only in stock the minimum could 
be fixed at one hundred and fifty. Here we get a 
reduction in stock in one hundred and fifty units and 
a reduction in storage space that should be equiva- 
lent to more than this number. 

Correct Definitions.— In Chapter II the question of 
correct definitions and specifications was covered ex- 
haustively. Next to the purchasing department the 
stores department is interested in this matter to a 
larger extent than any other. More requisitions are 
sent from the stores to the purchasing department 
than from any other department, and it is therefore 
essential that these be correct to save time and trouble 
in both departments. 

It is not an easy matter to get all the foremen in 
a large establishment to specify correctly each article 
in making requisitions for material from the stores, 
but undoubtedly considerable improvement could be 
effected in the conditions existing in many plants. 
Even if requisitions for material come into the stores 
with incorrect descriptions, the stores department 
should not repeat these in writing up the requisitions 
which go to the purchasing department. The stores 



department is between the buyer and user of the 
material and can materially help in the adoption of 
correct and uniform methods of specifying and defin- 
ing all materials and supplies. 

Inventory Price and Market Value. — ^Customary ac- 
counting methods are not opposed to inventorying 
raw material at the market price prevailing when 
inventory is taken, but there are times when a sound 
business policy could scarcely justify this. There is 
a trite saying in the speculative world that '*what 
goes up must come down." If this is true, then an 
inventory taken at the top of an unusual rise would 
be fictitious and simply show inflated profits. A later 
inventory taken after a severe downward movement 
might then indicate losses which had not actually 
been incurred. 

When conditions are unusual, the customary 
methods are hardly applicable. For example, if the 
country has experienced a continued and prolonged 
advance in prices of all raw materials for several years 
and the indications for the future are that this up- 
ward tendency will be maintained, why then should 
not a manufacturer inventory the stores at the exist- 
ing market price and figure it as profit! Even if a 
decline is not imminent, even if the exceptional price 
level is maintained for another year, the manufac- 
turer will ultimately be faced with the reverse of the 
problem — a stock of raw materials contracted for at 
high prices and a rapidly falling market. At pres- 
ent the manufacturer may show his profits from the 
rise; his losses are still matters of the future. 
The conservative manufacturer can only treat ab- 



328 



PURCHASING AND STORING 



RAW MATERIAL AND SUPPLIES 



329 



normal rises in prices in one way in-so-far as his in- 
ventory is concerned. He should figure that he has 
but half completed the transaction and that he had 
better not consider the increase in the values of his 
raw materials as a profit. He should consider that 
he is temporarily custodian of a goodly sum, a part 
of which may remain with him if his judgment has 
been sound and no adverse conditions arise. Should 
high prices continue from one inventory to another 
until they become, in a sense, almost normal, it may 
be permissible to consider part of the advance as 
profit, but a certain amount should be set aside as a 
reserve against a decline that is inevitable. 

Storage Space and Production. — There should be a 
proper balance maintained between storage space and 
production requirements. Excessive space is an ex- 
pense and increases the cost of all goods in storage, 
while cramped storage facilities has exactly the same 
effect in that it may hamper the free movement of 
the material or necessitate handling it twice. There 
is, perhaps, another more vital reason against in- 
sufficient storage space. It is this, that the minimum 
quantity of each class of material may be cut to a 
point where the proper factor of safety is dis- 
regarded. 

In manufacturing a staple product (or one machine, 
such as an automobile), it is possible to determine 
with a nice degree of accuracy the proper proijortioii 
between storage space and production space; but 
when a large number of articles are made, some of 
which are at times in greater demand than at others, 
the question becomes more complicated. When ac- 



curate areas cannot be determined, or when there 
may be some variation because of changes in manu- 
facturing conditions, it is better to err on the side 
of amplitude. This direction contains fewer elements 
which tend to advance costs, and certainly has fewer 
risks attached to it. 

Establishing the Maximum and Minimum.— At one 
time or another obsolete material will be found in 
every factory storeroom. If an infallible system 
existed for determining the maximum and minimum 
limits this condition would not exist. Obsolete ma- 
terial is dead material. It is worse than dead be- 
cause, as the previous discussion has shown, the 
storage cost in connection with it is a live factor and 
continually mounting upwards. It is imperative 
therefore that all obsolete material be quickly dis- 
posed of at the best possible prices. But it would be 
better if obsolete material were not allowed to ac- 
cumulate. Any study of the prevention of this in- 
volves a discussion of the maximum and minimum 
limits. 

The minimum quantity of material in storage is 
established upon certain calculations, the principal one 
being the determination of a sufficient supply of raw 
material to make sure that the manufacturing pro- 
cess will proceed in unbroken continuity. Other ele- 
ments which influence the establishment of the maxi- 
mum and minimum are the available storage space, 
the length of time required to obtain the material, 
and the quantity which can be purchased most 
economically. All of these must be taken into con- 
sideration and carefully balanced. 



330 



PURCHASING AND STORING 



RAW MATERIAL AND SUPPLIES 



331 



The production manager, the storekeeper, and the 
purchasing agent all come in on this question. Tak- 
ing the production manager's point of view first; he 
has to consider the output of his factory, whether 
this output is uniform through the year, and whether 
any manufacturing changes which may be contem- 
plated are likely to make any change in the rate of 
the output or change in the character of the material. 

Having determined this point in reference to each 
class of raw material, each item must be reviewed at 
periodic intervals. Failure to do this is frequently 
the cause of shortage of material or the accumulation 
of obsolete- quantities. 

It then becomes the duty of the storekeeper to 
have the raw material always on hand to supply the 
demands of the factory. The information given by 
the production manager furnishes the basis for the 
storekeeper's calculations. He knows that a certain 
material, for instance, will be consumed at' an aver- 
age rate of 300 pounds per week, and it becomes his 
duty to determine the minimum amount he can keep 
in the stores to meet that demand. 

Every calculation of the storekeeper for the eco- 
nomic reasons already given, must have in view the 
maintenance of his stock at the lowest level con- 
sistent with safety. The establishment of a minimum 
is vastly more important than that of fixing a maxi- 
mum. For every item in stores there is an exact 
quantity which is a safe minimum. Every time this 
is exceeded, rent, interest, insurance, and every other 
economic factor is working against the storeroom. 
Every time the quantity is below this exact minimum 



the danger is imminent of a factory shut-down with 
its attendant losses. To make calculations which 
come anywhere near accuracy, he must figure the 
exact time required to receive, inspect, and store each 
item; he can then specify on his requisition to the 
purchasing agent the exact date on which the ma- 
terial must reach the factory. 

It is here that the purchasing agent comes in with 
his information governing the delivery conditions. 
Some items may be freely obtained at a few days 
notice, others may take weeks, and others months. 
In all cases delivery conditions are subject to changes, 
but the purchasing department should sense these 
changes and give due notice to the storekeeper to 
enable him to prepare his requisitions sufficiently far 
ahead of his requirements to permit purchasing and 
delivering the material. 

Looking at this problem theoretically it has the 
aspects of a comparatively easy proposition, but in 
practice it is not so simple, because many of the 
calculations made by the three parties most inter- 
ested do not materialize in exactly the manner esti- 
mated. It is necessary therefore to consider these 
variations and how to overcome them. 

Assuming that the purchasing agent has entered 
into a contract for a staple material to be supplied 
in quantities of uniform amounts at regular inter- 
vals to conform to the maintenance of the store- 
keeper's minimum, still it may not be possible to 
secure this supply regularly. The purchasing agent 
must always have this contingency in view and must 
have auxiliary sources from which he can supply the 



332 



PURCHASING AND STORINO 



RAW MATERIAL AND SUPPLIES 



333 




imil 



deficiency. If a deficiency has to be made up by 
purchases from warehouses at a higher price than 
the mill shipments called for in the contract, then a 
decision must be made as to whether it is a more 
economical proposition to pay the higher price or to 
raise the storekeeper's maximum limits. Recourse to 
the latter would increase storage costs but would en- 
able a larger stock to be carried to tide over periods 
of temporary shortage. 

The purchasing agent may find that the maximum 
fixed on certain items does not permit the purchas- 
ing function to be executed on the most economical 
basis. It may be found that purchases made in 
larger quantities can be obtained at substantial re- 
ductions in prices, or advantages can be secured in 
transportation and delivery charges. A careful con- 
sideration of these points may also result in a deci- 
sion to raise the maximum limits. 

One of the most difficult situations to deal with 
is m connection with a growing scarcity of a com- 
modity and the attendant uncertainty regarding de- 
livery. There have been, for example, many in- 
stances where a commodity could be obtained with 
reasonable certainty one month after placing an 
order. A growing scarcity may extend this time to 
two months, and then to four, and later to six 
months or longer, and even then the deliveries are 
very uncertain at best. A four months' promises of 
delivery may be a six months' performance. It is 
possible that the production manager does not want 
to commit himself so far ahead. Such comlitions can 
only be safely taken care of by liberally increasing 



the maximum limits to provide for all contingencies. 
There are some minor reasons for changing the 
maximum, but the major ones given above cover the 
point sufficiently. The result of changing is the same 
in every case. The maximum which was established 
on a scientific basis, when departed from makes the 
danger of accumulating a stock of obsolete material 
a very live one. The risks are of varying degree. In 
many instances there is really no risk that the ma- 
terial will become obsolete, there is only the expense 
of carrying a large overstock when the market be- 
comes easier. In other instances where a manufac- 
turer may be making a number of different types 
of machines, the sales of these may be irregular and 
the quantity under construction in the shop may vary 
considerably, but nevertheless it is necessary to carry 
a stock of raw material to provide for a definite num- 
ber. 

Assuming that the minimum is fixed on a basis of 
three months requirements as determined by the 
average construction in the past, if delivery condi- 
tions become exceptionally bad it may be necessary 
to order supplies for eight or nine months in ad- 
vance. This period, with the three months' minimum 
stock, means that a year's supply of raw materials 
or parts are under contract for a machine which 
might be radically changed at any moment. Situa- 
tions and conditions such as these demand the most 
thoughtful treatment. 

Fixing maximum and minimum limits has been 
called scientific guessing. Economic reasons demand 
as much science and as little guessing as possible. It 



334 



PURCHASING AND STORING 



RAW MATERIAL AND SUPPLIES 



335 



til 



% 



has been shown that important factors definitely con- 
trol the establishment of a minimum, and that th(» 
flexibility allowable in establishing the maximum is 
caused, mainly, by the freedom of action essential in 
buying, as well as by an increase in the rate of pro- 
duction above the normal rate on which the minimum 
is based. 

The Financial and the Stores Departments.— A fal- 
lacy is largely prevalent that because a concern is in 
a strong position financially, this very desirable state 
of affairs should influence the determination of maxi- 
mum and minimum limits in the raw materials stores. 
On this point, C. Bertrand Thompson, writing in 
Factory, states: 

The state of the financial department should dettirmine how 
much stock of materials should be carried. . . . 

If a perpetual inventory of each item in stock is main- 
tained as it should be, it takes only a very short time to de- 
cide what is the safe minimum of stock to be kept on hand. 
This depends, of course, on the rate at which the material is 
used and the length of time it requires to get delivery on an 
order from the source of supply. When the balance on hand 
falls to this minimum, the purchasing agent should be noti- 
fied to re-order for replenishment. Such notification may go 
on a requisition blank. 

The quantity that he shall re-oi'der on this requisition de- 
pends, not primarily on the price at which he can get it, but 
on the amount of capital which the firm is willing to tie up 
in raw materials and on the space available for storage. 

The purchasing agent has nothing to do with either of these 
questions — one is determined by the policy of the financial 
managers of the concern; the other by the actual space 
physically available. 



It would seem from this that if space is available, 
purchasing should proceed up to the limits of one's 
financial resources. Mr. Thompson ignores the eco- 
nomic factors connected with storage, and the only 
assumption possible is that advantage should be 
taken of a favorable market to buy for a rise. Such 
a policy is better suited to a jobber or supply house. 
Unless due consideration were given to many other 
factors it might lead to disastrous consequences in 
buying for the stores of an industrial establishment. 



RECEIVING AND STORING 



337 



CHAPTER XVII 

RECEIVING AND STORING RAW MATERIALS 

Equipment and Manual Operations. — Large sums 
are constantly being expendeci in developing and per- 
fecting machinery and tools to obtain quicker and 
better results in the production department. There 
are many cases where industrial establishments are 
prodigal in this respect but niggardly in others. This 
parsimony is frequently seen in connection with stor- 
age arrangements, or in the facilities for rc^ceiving or 
shipping goods. By way of comparison take the tool 
room in some shop and note the care bestowed on 
the tools, how carefully they are maintained and how 
precisely stored. But in the same establishment the 
raw material storey may be poorly arranged, loosely 
kept, and untidy in appearance. 

Well arranged and equipped storage facilities are 
absolutely essential in any modern factory. The aim 
of the production department being to get the maxi- 
ihum output from a machine at the minimum cost, 
then all movements leading up to that machine or 
away from it should be governed by the same prin- 
ciples. All the reduction in cost effected by a new 
tool in the shop can be more than offset by the in- 
ordinate amount of time required to get the materials 
into incommodious storerooms and out again. 

336 



> 



Planning and Locating the Storeroom. — In plan- 
ning the storage facilities, proportion is one of two 
main essentials and location is the other. Storage 
space properly proportioned to the needs of a fac- 
tory is an economic factor of great importance, and 
a well selected location will save much physical ef- 
fort. In large establishments with many departments 
there will naturally be branch or subsidiary store- 
rooms located at convenient and accessible points. 
Some raw material may undergo only one operation, 
or pass through only one department before going to 
the assembling shop or finished stock room. In such 
cases the material can go directly from the receiving 
department to the storeroom connected with the de- 
partment in which the work is to be done. This 
question of planning locations scarcely comes within 
the scope of the present discussion, but to enable the 
stores to be handled in the most efficient manner it 
should be given proper consideration in the layout of 
a plant. 

It is scarcely necessary to point out that individual 
circumstances and conditions will influence the amount 
of storage space and location. The product of one 
plant may require the storage of light and bulky raw 
material, another of heavy material, while others may 
use many small .articles. However this may be, there 
are two physical factors in connection with any stor- 
age proposition which can be discussed along the 
same general lines. . 

Manual and Clerical Work. — The two factors re- 
ferred to are the manual work and the clerical work 
connected with the operation of the stores. If one 



338 



PURCHASING AND STORING 



Of these were inaccurately done, the result would be 
confusion, regardless of how accurate the other might 
be. Ckrical records can be very simple but very 
complete and absolutely accurate; but if a shipment 
ot ii.32 machine screw nuts was dumped into the bin 
contaimng 10-30 nuts, or if a helper handed out 110 
pounds of copper rod instead of 100 pounds, the cleri- 
cal records would not tally with the contents of the 
racks and bins The closer these two features can be 
brought into harmony the nearer is the operation ot 
them brought to a state of perfection. 

Generally speaking more attention has been paid to 
securing accuracy in the clerical work than in the 
manual operations, but the demand for better methods 

counnL ' t^" "^'^''"P"'' "^"5^ appliances for 
Zn^f' '"'^«\'"^' ,inea«'^ring, handling and trans- 

Zn « V^"" TT'' ^"*^ ^"^P"^^- Many improve- 
ments have also been effected in the arrangement 
and equipment of storerooms, conserving space re 
ducing labor and expediting and facilitating' the 
handling of the contents. No discussion of stores prob- 

oTor f ^: ""f ''''^ '^^'"P'^t^ ""h°"< reference 
to some of these. It would be manifestly impossible 

to describe, or even mention, all the good things the e 

are on the market at the disposal of and suitablelo 

storeroom use In calling attention to a few of them 

therefore. It is not intended to discriminate againT 

"'ilT'^T''^"^'?"'^^ ""''''' ^"'i usefulness 

The Counting Problem—Comparatively few things 
hat are handled in bulk in factories are vl ed fn 
size weight, or character. Consequently the great 
problem is one of counting, with L least expendi 




INTENTIONAL SECOND EXPOSURE 



338 



PURCHASING AND STORING 



I'M' 




I 



'I ! lilt 




of these were inaccurately done, the result would be 
confusion, regardless of how accurate the other might 
be. Clerical records can be very simple but very 
complete and absolutely accurate; but if a shipment 
ot «-d2 machine screw nuts was dumped into the bin 
containing 10-30 nuts, or if a helper handed out 110 
pounds of copper rod instead of 100 pounds, the cleri- 
cal records would not tally with the contents of the 
racks and bins. The closer these two features can be 
brought into harmony the nearer is the operation ot 
them brought to a state of perfection. 

Generally speaking more attention has been paid to 
securing accuracy in the clerical work than in the 
manual operations, but the demand for better methods 
m the latter has developed many appliances for 
counting, weighing, measuring, handling and trans- 
porting raw materials and supplies. Manv improve- 
nieiits have also been effected in the an-angement 
and equipment of storerooms, conserving space, re- 
ducing labor, and expediting and facilitating the 
handling of the contents. No discussion of stores prob- 
lems could be considered comjjlete without reference 
o some of these. It would be manifestly impossible 
to describe, or even mention, all the good things there 
are on the market at the disposal of and suitable for 
storeroom use. In calling attention to a few of them, 
therefore. It is not intended to discriminate against 
other appliances of equal merit and usefulness 

The Counting Problem-Con.paratively few things 
that are handled in bulk in factories are varied in 
size weight, or character. Consequently the great 
problem is one of counting, with the least expendi- 




340 



PURCHASING AND STORING 



ture of time and labor, the masses of things which 
come in like units, or in units which vary so slightly 
in weight and size that the variations can be neutral- 
ized on a bulk machine count. 

As a rule the hand-counter in an industrial estab- 
lishment makes a mark with a pencil as he or she 
finishes a hundred. Thus in hand-counting, there are 
usually three distinctly different operations: the 
hand operation, the mind operation, and the pencil 
operation. Now suppose that just as a worker is 
about to put down a *' hundred" mark, his attention 
is distracted by a loud noise or by someone speaking 
to him. When his mind returns to the task in hand 
is he likely to know whether he has made, or still has 
to make, that ** hundred" mark? Such instances are 
frequent, and the almost invariable tendency is to 
''stay on the safe side." The counters argue that it 
is better to count out too many than too few. 

Does dependence on this kind of accuracy *'fit" 
with the careful calculations upon which modern 
business rests? 

When machine operators receive from the stores 
2020 or 2005 each of parts to be worked on, instead 
of 2000, the stipulated number, how can the foreman 
know where he is ''at," or how can disputes be 
avoided with piece workers? Furthermore, if one 
looks at it "in the large," and reasons that the effect 
of each error grows more harmful the longer it, or its 
cause, remains unremedied, how can the superintend- 
ent know what is being wasted until the magnified 
result of some miscalculation shows up in serious 
form? 





INTENTIONAL SECOND EXPOSURE 



fllll 



r™ 




340 



PURCHASING AND STORING 



ture of time and labor, the masses of things which 
come in like units, or in units which vary so slightly 
in w^eight and size that the variations can be neutral- 
ized on a bulk machine count. 

As a rule the hand-counter in an industrial estab- 
lishment makes a mark with a pencil as lie or she 
finishes a hundred. Thus in hand-counting, there are 
usually three distinctly different operations: the 
hand operation, the mind operation, and the pencil 
operation. Now suppose that just as a worker is 
about to put down a '* hundred '^ mark, his attention 
is distracted by a loud noise or by someone speaking 
to him. When his mind returns to the task in hand 
is he likely to know whether he has made, or still has 
to make, that *' hundred" mark? Such instances are 
frequent, and the almost invariable tendc^ncy is to 
*'stay on the safe side." The counters argue that it 
is better to count out too many than too few. 

Does dependence on this kind of accuracy **fit" 
with the careful calculations upon which modern 
business rests? 

When machine operators receive from the stores 
2020 or 2005 each of parts to be worked on, instead 
of 2000, the stipulated number, how can t\w foreman 
know where he is **at," or how can disputes be 
avoided with piece workers? Furthermore^, if one 
looks at it ''in the large," and reasons that the effect 
of each error grows more harmful the longer it, or its 
cause, remains unremedied, how can the superintend- 
ent know what is being wasted until the magnified 

result of some miscalculation shows up in serious 
form? 




u. O 

Q O 



P3 



O 



02 

< 






o 



< 



o 



^ Q 



O 



o 
m 

w 
a 
o 

H 



00 
CO 







342 



PURCHASING AND STORING 



RECEIVING AND STORING 



343 



One point is especially worthy of mention, and it 
may well be emphasized here: The actual work of 
production, dominantly important though it is, has 
absorbed more than its share of serious attention and 
has thereby overshadowed many contributory prob- 
lems, such as the counting of parts, stock, and ma- 
terial — operations which furnish abundant oppor- 
tunities for leaks and losses. 

Next in importance to the inaccuracy and lessened 
efficiency caused by unnatural mindstrains, are the 
expenditure of time and labor. It is evident that if 
a man counts 1000 small articles by fives, he performs 
200 separate and physical and mental operations. If 
the articles are so large that he must count by twos, 
then 500 physical and a similar number of mental 
operations must be performed. A conservative esti- 
mate, therefore, places the average handcount ratio 
of the minimum number of operations to the number 
of articles to be counted at one manual and one 
mental operation to each count of five pieces. 

Counting Methods. — All counting methods now in 
use, logically divide themselves into five divisions, or 
separate systems including hand-counting. Eliminat- 
ing the hand counting, the use of which is only permis- 
sible for very small quantities, the four remaining 
systems can best be described under the name of the 
type of equipment used, thus we have the '* weighing 
and estimating method," the **even balance scale,'' 
the ** proportional scale," and the '* counting scale" 
or '* counting machine" as it is generally known. 

The expressions ** counting by weight" or **by the 
pound" are often used to explain mechanical count- 



ing, but they are not altogether correct. '* Counting 
bv balance" is more accurate because all devices that 
count, while more or less highly developed forms of 
scales, operate on the principle which says that an 
object placed at the end of a lever will balance two 
of the same objects at the other end, provided the 
lever is pivoted at the right point. Indeed with the 
exception of the weighing and estimating method of 
counting, in which the known weight is a necessary 
factor, the most modern systems of mechanical 
ci)unting are not dependent on the know^n weight of 
the objects handled at any stage of the operation. 
The only thing required in that respect is that these 
objects be in weight units suitable to the ratio capa- 
city of the counting device employed. 

To gauge the efficiency of the different methods 
of counting by balance, it is advisable to remember 
that industrial counting is divided into two kinds 
of tasks. One is the counting, or measuring out, of 
stated quantities for disbursement to departments or 
machine operators. The other is the determination 
of how many things there are in bulk lots of un- 
known quantities. This requirement provides the 
severest test of mechanical counting efficiency. 

AYith these points clearly in mind, the differences 
between the various methods can be more clearly 
explained and will be taken up according to the 
order of their generally accepted efficiency. 

Weighing and Estimating.— This method of count- 
ing represents the first step between hand counting 
and the use of a machine made specifically for the 
purpose It is still in use to some extent. 



344 



PURCHASING AND STORING 



In using the weighing and estimating method, the 
weight of a given number of the articles to be 
counted— preferably an even number for the sake of 
quick calculation— is first obtained, usually on a 
regular weighing scale. If 200 articles of uniform 
size and weight, for instance, weigh three pounds, 
then exactly twelve pounds of the same pieces must 
contain a total of 800 pieces. (See Figure 69.) 

Greater speed and fewer operations are the ad- 
vantages of this method over hand-counting, but it 
still invites inaccuracies from mental computation. It 
is also doubtful if the common insensitiveness of a 
scale made simply for weighing ever permits much 
greater accuracy when used for counting. Very few 
weighing scales of any considerable capacity can be 
compared with mechanical counting devices as to 
sensitivenes. And the degree of sensitiveness is the 
chief factor in determining the efficiency of a machine 
that counts by balance. The least hesitation of one 
of these devices in responding when the burden on 
the platform is increased or decreased is a flaw in the 
accuracy of the machine. Exceedingly quick re- 
sponse of a high grade counting-by-balance device, 
technically termed a *' sensitive break," is absolutdy 
necessary to accuracy. 

Even Balance Scale.— This system of counting also 
represents one of the earlier attempts to improve on 
hand-counting by means of a mechanical device. 

To count out 2,000 articles with an even balance 
scale, 500 articles, for instance, are first counted out 
by hand and placed on a tray or receptacle on one 
side of the balance, or scale. By putting an equal 




INTENTIONAL SECOND EXPOSURE 




344 



PURCHASING AND STORINO 



411 




t 


1 


< 


1 



In using the weighing and estimating method, the 
weight of a given number of the aiticles to be 
counted— preferably an even number for the sake of 
quick calculation— is first obtained, usually on a 
regular weighing scale. If 200 articles of unifoi'in 
size and weight, for instance, weigh three pounds, 
then exactly twelve pounds of the same pieces must 
contain a total of 800 pieces. (See Figure 69.) 

Greater speed and fewer operations are the ad- 
vantages of this method over hand-counting, but it 
still invites inaccuracies from mental computation. It 
is also doubtful if the common insensitiveness of a 
scale made simply for weighing ever permits much 
greater accuracy when used for counting. Very few 
weighing scales of any considerable capacity can be 
compared with mechanical counting devices as to 
sensitivenes. And the degree of sensitiveness is the 
chief factor in determining the efficiency of a machine 
that counts by balance. The least hesitation of one 
of these devices in responding when the burden on 
the platform is increased or decreased is a flaw in the 
accuracy of the machine. Exceedingly quick re- 
sponse of a high grade counting-by-balance device, 
technically termed a ** sensitive break," is absolutely 
necessary to accuracv. 

Even Balance Scale.— This system of counting also 
represents one of the earlier attempts to improve on 
hand-counting by means of a mechanical device. 

To count out 2,000 articles with an even })alance 
scale, 500 articles, for instance, are first counted out 
by hand and placed on a tray or receptacle on one 
side of the balance, or scale. By putting an equal 



# 




346 



PURCHASING AND STORING 



RECEIVING AND STORING 



347 



Itiill 



quantity of these articles on the opposite tray an 
even balance is struck, of course; and, if the orig- 
inal or base, hand-count was correct, tlie balance 
scale holds 1,000 pieces. Then the five hundred 
pieces on one side are put with the five hundred 
on the other and enough pieces put on the empty 
tray to balance the scale again, making a total of 
2,000. 

To count a bulk-lot of unknown content by this 
method, it is first necessary to count by hand a **'base 
number" lot — as described above — which may be 
100 or 500 articles, depending on the size of the lot 
to be counted. Then a series of balances are made, 
as in the first described use of this scale, until the 
remainder is too small to create a balance, when the 
hand method is again employed. 

Proportional Scales.— Proportional scales are made 
to work according to certain set even ratios; and the 
ratios usually range from 10 to 1 up to 200 to 1. A 
scoop hangs from the end of the scale beam, serving 
as the counter-poise. On the 10 to 1 scale, one hun< 
dred small pieces in the counter-poise scoop will bal- 
ance 1,000 similar pieces on the platform. 

To count the contents of unknown bulk lots with 
this scale, the material to be counted is put on the 
platform, while enough pieces are put in the counter- 
poise scoop to bring the beam to a *'low balance.'' 
Then a single piece is removed from the scoop, giv- 
ing a **high balance." Next, enough pieces are 
taken from the platform to make a perfect balance. 
The total of the pieces removed from the platform 
is added to the total of pieces on the platform, which 



total has been determined by multiplying the ratio of 
the machine by the number of pieces in the counter- 
poise scoop. 

To count out a specified number of pieces with the 
proportional scale, a number of pieces are placed in 
the counter-poise, in number equal to 1/10, 1/50, or 
1/200 of the total quantity to be counted, the pro- 
portion depending, of course, upon the set ratio 
capacity of the scale in use. The platform is then 
burdened with a load of pieces sufficient to bring the 
beam to the perfect balance point. Without further 
adjustment of beam or counter-poise scoop, it is then 
possible to count out as many lots as desired by 
simply repeating the process of loading the platform 
to the balancing point. These scales can also be used 
for the purpose of weighing material as well as for 
counting. (See Figures 69 and 70.) 

Counting Machines. — The counting machine, which 
retains the form of a scale, has reduced the process 
of mechanical counting to the point where, with the 
exception of the comparatively small hand count 
necessary to provide the ratio number necessary to 
operate, all mental computations have been elimi- 
nated. The results are secured almost automatically 
and the total counts are indicated in plain figures on 
graduated counting bars, which are attached to the 
beam. These machines have the usual small scoop to 
take the ratio count of pieces, but this scoop or ratio 
pan, slides along the counting bar instead of resting 
in fixed position on the counter-poise. 

Counting machines are made in a great variety of 
sizes and capacities from the delicate machines. Fig- 



348 



PURCHASING AND STORING 



RECEIVING AND STORING 



349 



I 



ures 71 and 72, which count 25,000 pi(»ces to the 
ounce, up to machines of heavy dormant type, Fig- 
ure 73, which counts tons of heavier piec(»s. 

To obtain the count of an unknown quantity of 
pieces with the counting machine, the tare of the 
package or contents is first set out on one or the 
weighing beams, of which there are usually two. 
From the contents of the package the number of 
pi«ces required for the ratio pan are taken out, the 
number required for this purpose is indicated on the 
counting bar. The ratio pan is then move<l along the 
counting bar until the beam is in balance. A pointer 
immediately above the ratio pan then indicates on 
the counting bar the exact number of pieces resting 
on the platform. 

When it is desired to count in certain specified 
lots, say 500, the tare of the package is set out as 
above indicated, the pointer is set against the 500 
mark on the beam, and the package is then loaded 
until the beam balances. 

There is assuredly no room for comparison as to 
simplicity, speed, or automatically certain accuracy 
between the few simple mental and manual oper- 
ations required by the ** balance" method and the 
old, primitive, hand-method, which requires scores, 
hundreds, or thousands, of time-and-energy-consum- 
ing motions. 

It is obvious that a succession of hundreds or thou- 
sands of similar acts is purely mechanical, and that 
the use of machinery, wherever economically possible, 
is a conservation of time and energy. Why should 
we have adding machines in the office and no me- 




PIGS. 71, 72, AND 73. COUNTING AND WEIGHING MACHINES 



350 



PURCHASING AND STORING 



EECEIVING AND STORING 



351 



chanical counting devices in the plant? Each is an 
application of the science of mathematics to the solu- 
tion of a problem of obtaining a maximum saving of 
time, and mental and physical energy by means of a 
short cut. 

A true short cut of this sort eliminates the use of 
the human brain as a mechanical recorder—and frees 
It for far more useful work. The general morale of 
workers as a whole has been greatly improved sine,, 
machines were made to relieve the mind of monoton- 
ous tasks. A general great improvement in efficiency 
means greater profits. 

Weighing Methods.— Inaccurate and careless weigh- 
mg IS inexcusable in an industrial establishment. It 
IS inexcusable anywhere, for that matter, for if a 
recorded weight is not correct nothing has been 
gained, except perhaps a vague idea of the weight. 
But such approximations cannot be tolerated in a 
factory turning out small parts. Suppose^ for in- 
stance, a storeroom issues one thousand pounds of 
brass rod to be used for making a screw machine 
product. If five thousand finished pieces are pro- 
duced from this quantity, an exact calculation can be 
made of the amount of metal in each finished unit 
as well as the scrap. But if the storeroom scales 
were incorrect to the extent of only ten pounds plus 
or minus the one thousand pounds, accurate cost 
keepirs' would be impossible. Such a condition re- 
peated from time to time over a year would show 
radical discrepancies somewhere. 

Correct weighing is a fundamental of the highest 
importance in deterinining the efficiency of oper- 



ations, and anything short of accuracy is positively 
harmful. Too little attention has been paid to pro- 
curing scales of the proper type for the various kinds 
of materials handled in the storeroom. The preva- 
lent custom has been to send a requisition to the pur- 
chasing agent to buy a bench scale or a platform 
scale, as the case may be. Quotations would be ob- 
tained and orders placed in much the same manner 
as similar transactions for brooms or shovels. The 
failure to recognize the vital importance of scales in 
the operation of a manufacturing plant cannot be 
wholly charged to the purchasing agent, for it is the 
production department that has the largest interest 
in securing the right kind of scales.* 

These instruments should be selected with just as 
much care as a new lathe or drill. The mechanical 
construction should be suitable for the uses to which 
they are to be put, and periodical inspection and test- 
ing should be insisted upon. The mechanical engi- 
neering and maintenance work of every industrial 
plant should include all weighing apparatus. To 
neglect these while at the same time making strenu- 
ous efforts to secure greater efficiency from the ma- 
chines and tools on which the material is used, does 
not afford any guarantee that the paper results rep- 
resent the true state of affairs. 

Many instances could be cited of bad weighing 
methods, but beyond the emphasis they would add 
to the argument against such practices they would be 

* The attention of the reader is caUed to the remarkable series 
of articles on Industrial Scales and Weighing Meth(Kls, by Herbert 
T. Wade, that appeared in Industrial Management, Vols. LII, and 
LIII. 



352 



PURCHASING AND STORING 



without purpose. A little thought given to the mat- 
ter cannot fail to convince anyone of the fundamental 
necessity for accuracy. To secure this, careful selec- 
tion must be made in the first place, and continued 
care and attention given to the maintenance of all 
scales in use, with proper tests and inspection. Wait- 
ing until some flagrant fault or actual failure de- 
velops may mean that registering has been incorrect 
for an indefinite period. 

Scale manufacturers have developed their product 
to a point where they can furnish practically any- 
thing demanded by the exigencies of any situation 
needing accurate weight records. It rests mainly 
with the user to specify the conditions under which 
the instrument is to be used, and not simi)ly go into 
the market and buy, without investigation, the cheap- 
est scale that has the required capacity. Often scales 
can be bought with the provision that they will be 
given regular inspection and test. Better methods in 
industrial plants require quality, not cheapness, and 
this engenders accuracy and efficiency. 

Trucking Material.— The scientific handling of ma- 
terial in every industry has not received sufficient at- 
tention. Until the elevating truck was introduced, 
practically the only known means of transporting 
material on the floor was the box or fixed-platform 
type of truck. The separation of the running gear 
from the platform has revolutionized transportation 
in stores. 

While the old style of platform truck must still be 
used for moving certain goods in a stor(»room, the 
main reliance to-day is placed on the lifting or ele- 




INTENTIONAL SECOND EXPOSURE 






II 



m 
m 



i 




352 



PURCHASING AND STORING 



without purpose. A little thought given to the mat- 
ter cannot fail to convince anyone of the fundamental 
necessity for accuracy. To secure this, careful selec- 
tion must be made in the first place, and continued 
care and attention given to the maintenance of all 
scales in use, with proper tests and inspection. Wait- 
ing until some flagrant fault or actual failure de- 
velops may mean that registering has been incorrect 
for an indefinite period. 

Scale manufacturers have developed th(4r product 
to a point where they can furnish practically any- 
thing demanded by the exigencies of anv situation 
needmg accurate weight records. It rests mainly 
with the user to specify the conditions under which 
the instrument is to be used, and not simi)ly go into 
the market and buy, witTiout investigation, the cheap- 
est scale that has the required capacity. Often scales 
can be bought with the provision that they will be 
given regular inspection and test. Better methods in 
industrial plants require quality, not cheapness, and 
this engenders accuracy and efficiency. 

Trucking Material.— The scientific handling of ma- 
terial in every industry has not received sufficient at- 
tention. Until the elevating truck was introduced, 
practically the only known means of transporting 
material on the floor was the box or fixed-platform 
type of truck. The separation of the running gear 
from the platform has revolutionized transportation 
in stores. 

While the old style of platform truck must still be 
used for moving certain goods in a storeroom, the 
main reliance to-day is placed on the lifting or ele- 



ir 




354 



PURCHASING AND STORING 



> I 



vatmg type of truck with the multiple platform sys- 
tem. These trucks can be obtained to cairy loads of 
any weight likely to be handled in the ordinary in- 
dustrial storeroom. They can be arranged so "that 
the platforms have sufficient clearance for any floor 
conditions, and can negotiate any grades which can 
be mounted by an ordinary truck. 

There are many types of these trucks in use, and 
while the construction of the steel frame and liftin- 
mechanism varies to some extent the principle is the 
same in all of them. The platforms are simple and 
inexpensive, and a large number of them can be kept 
on hand. When not in use they are nested and 
stacked, thereby occupying little floor space. One 
big advantage of these platforms in a storeroom is 
that raw material of some kinds can remain on the 
platform, saving the unloading and stacking when 
the material comes in and the reloading on the truck 
when delivering from stores. 

Some material of this character can be stacked in 
two or three. tiers. If it is necessary to get out the 
back tier first, it can easily be done by running the 
lift truck under the first and second tier platforms, 
pull them out, and have ready access to the rearmost 
tier at any point desired. 

Each platform really becomes a truck as soon as 
the transporting mechanism is run under it. This 
•enables the receipt of material into stores to be 
greatly facilitated, because as many platforms as 
may be necessary can be loaded at the receiving point 
and moved immediately to their respective places in 
the storeroom. It is not necessary to unload these at 




INTENTIONAL SECOND EXPOSURE 



mi 






:: 



■A 

I 






354 



PURCHASING AND STORING 



vatmg type of truck with the multiple platform sys- 
tem. These trucks can be obtained to cai-iy loads of 
any weight likely to be handled in the ordinary in- 
dustrial storeroom. They can be arranged so 'that 
the platforms have sufficient clearance for any floor 
conditions, and can negotiate any grades which can 
be mounted by an ordinary truck. 

There are many types of these trucks in use, and 
while the construction of the steel frame and liftin.- 
mechanism varies to some extent the principle is iC 
same in all of them. The platforms are simple and 
inexpensive, and a large number of them can be kepi 
on hand. When not in use they are ii(;sted and 
stacked, thereby occupying little floor space. One 
big advantage of these platforms in a storeroom is 
that raw material of some kinds can remain on the 
platform, saving the unloading and stacking when 
the material comes in and the reloading on the truck 
when delivering from stores. 

Some material of this character can be stacked in 
two or three tiers. If it is necessary to get out the 
back tier first, it can easily be done by running the 
lift truck under the first and second tier platforms, 
pull them out, and have ready access to the rearmost 
tier at any point desired. 

Each platform really becomes a truck as soon as 
the transporting mechanism is run under it This 
•enables the receipt of material into stores to be 
greatly facilitated, because as many platforms as 
may be necessary can be loaded at the reeeiviu"- point 
and moved immediately to their respective places in 
the storeroom. It is not necessary to unload these at 




% 



356 



PURCHASING AND STORING 




once and place the articles in bins or on shelves, as 
the platforms can remain where placed until suffi- 
cient help is at liberty to do the work. This greatly 
reduces the amount of labor required by the old 
trucking system, where the truck was run backwards 
and forwards, dumping the material on the floor, or 
causing delays by holding the truck while unloading 
and stacking goods. 

The use of this system in transporting goods in the 
stores has many advantages. It cuts down the initial 
expenditure for equipment; it reduces the labor item 
considerably; much time is saved, because the unload- 
ing and re-loading of material may be eliminated; 
much of the floor space occupied by the old style 
truck is saved. Also, as the goods are not handled so 
much the risk of loss by damage is reduced. Ami, 
finally, the trucking system is quicker and more 
flexible. If a storeroom is receiving castings or any 
article which will ultimately go into the shop in 
quantities of 100, 500, or any other number, they can 
be placed on the truck platforms in these quantities 
and no re-counting or handling is necessary. They 
can then be delivered to the production department 
at a moment's notice by simply running a truck 
under the platform. In some stores the raw material 
can be very largely handled in this way on much the 
same principle as the use of tote boxes. In fact, the 
platforms can be arranged as tote boxes if advisable. 

Lift trucks built for heavy duty are lowered grad- 
ually and effectually by a hydraulic check. For oper- 
ating in large areas they can be equipped with elec- 
tric drive. The head and front wheels are so placed 




INTENTIONAL SECOND EXPOSURE 




•■ ft 







356 



PURCHASING AND STORING 



once and place the articles in bins or on shelves, as 
the platforms can remain where placed until suffi- 
cient help is at liberty to do the work. This greatly 
reduces the amount of labor required liy the old 
trucking system, where the truck was run backwards 
and forwards, dumping the material on Ihe floor, or 
causing delays by holding the truck while unloading 
and stacking goods. 

The use of this system in transporting goods in thft 
stores has many advantages. It cuts down the initial 
expenditure for equipment; it reduces the labor item 
considerably; much time is saved, because the unload- 
ing and re-loading of material may be eliminated; 
much of the floor space occupied by the old style 
truck is saved. Also, as the goods are not handled so 
much the risk of loss by damage is reducted. And, 
finally, the trucking system is quicker and morij 
flexible. If a storeroom is receiving castings or any 
article which will ultimately go into tlie shop in 
quantities of 100, 500, or any other number, they can 
be placed on the truck platforms in these quantiticF 
and no re-counting or handling is necessary. The> 
can then be delivered to the production department 
at a moment's notice by simply running a truck 
under the platform. In some stores the raw material 
can be very largely handled in this way on much thi 
same principle as the use of tote boxes. In fac^t, th( 
platforms can be arranged as tote boxes if advisable. 

Lift trucks built for heavy duty are lowered grad- 
ually and effectually by a hydraulic check. For oper- 
ating in large areas they can be equipped with elec 
trie drive. The head and front wiieels are so placed 







358 



PURCHASING AND STORING 



as to turn a complete cycle, enabling the truck to 
operate in its own length in narrow aisles. 

Figure 76 shows a further development in elevat- 
ing trucks, on which a scale is mounted so that ma- 
terial loaded on the platform may be weighed (grosH, 
net and tare weights can be quickly determined) and 
when transported wherever desired without rehand- 
ling. When transporting material the loaded plat- 
form is supported on a special set of side bars, so 
that there is no strain on the scale mechanism. 

Conveyors.--The layout of a plant should provide 
for a location for the storeroom in clos(* proximity 
to the receiving department. There may be condi- 
tions where this is impossible, and in those cases 
where a number of subsidiary storerooms are main- 
tained in separate buildings, it is, of course, not feas- 
ible to have them adjacent to each other. Hand 
trucking may not prove the best means of transport- 
ing material in such instances, and it becomes neces- 
sary to use self propelled trucks or some kind of 
conveyor. 

The very large size of many industrial plants, the 
great amount of ground space occupied, and the 
necessity of hauling vast quantities of material havt' 
resulted in the installation of various typ(is of con- 
veying equipment to make possible the rapid trans- 
portation of parts from one building or one section 
of the plant to another. The use of conveyors for 
this purpose keeps the manufacturing operations in 
progress without delays and reduces the cost of 
handling the goods to a minimum. 

As there are so many types of conveyors, and as 




FIGS. 77 AND 78. RECEIVING GOODS BY ROLLER CONVEYERS 

Bolls of paper, above, delivered to the basement storeroom of the 

Empire Paper Tube and Box Co., N. Y. Below, goods received into 

the stores of Endicott, Johnson & Co., Binghamton. 359 



INTENTIONAL SECOND EXPOSURE 



It 



m^M'^ 



358 



PURCHASING AND STORING 



as to turn a complete cycle, enabling the truck to 
operate in its own length in narrow aisles. 

Figure 76 shows a further development in elevat- 
ing trucks, on which a scale is mounted so that ma- 
terial loaded on the platform may be weighed (gross, 
net and tare weights can be quickly determined) antl 
when transported wherever desired without rehand- 
ling. When transporting material the loaded plat- 
form is supported on a special set of side bars, so 
that there is no strain on the scale mechanism. 

Conveyors.— The layout of a plant should provide 
for a location for the storeroom in close proximity 
to the receiving department. There may be condi- 
tions where this is impossible, and in those cases 
where a number of subsidiary storerooms are main- 
tained in separate buildings, it is, of course, not feas- 
ible to have them adjacent to each other. Hand 
trucking may not prove the best means of transport- 
ing material in such instances, and it becomes neces- 
sary to use self propelled trucks or soukj kind of 
conveyor. 

The very large size of many industrial plants, the 
great amount of ground space occupied, and the 
necessity of hauling vast quantities of matc^rial have 
resulted in the installation of various types of con- 
veying equipment to make possible the rajnd trans- 
portation of parts from one l)uilding or one section 
of the plant to another. The use of conveyors for 
this purpose keeps the manufacturing operations in 
progress without delays and reduces the cost of 
handling the goods to a minimum. 

As there are so many types of conveyors, and as 




FIGS. 77 AND 78. RECEIVING GOODS BY ROLLER CONVEYERS 

Rolls of paper, above, delivered to the basement storeroom of the 

Empire Paper Tube and Box Co., N. Y. Below, jroods received into 

the stores of Endicott, Johnson «& Co., Bin^iiamton. 359 



360 



PURCHASING AND STORING 



nearly all types can be arranged for variations in lo- 
cation changed in construction to suit tlu* character 
of the material to be conveyed, any detailed discus- 
sion of the various problems met with in storeroom 
practice is out of the question here. 

Engineers and managers of industrial plants have 
of late been devoting considerable attention to the 
possibilities of harnessing the force of gravity to 
solve their trucking problems. Gravity is always 
ready to operate on the instant, twenty-four hours a 
day, three hundred and sixty-five days in the year, 
without attention. 

Wherever large quantities of regular objects are 
to be moved in a fairly steady stream from floor to 
floor downward, or from one level to a lower one on 
the same floor, some type of gravity conveyor usually 
can be devised which will handle the mat(»rial rapid- 
ly, economically, and with safety to both goods and 
workmen. 

Even for moving materials from one point to an- 
other on the same level the gravity convt^yor may he 
used when it is combined with short elevating sec- 
tions operated by individual motors; for an insignifi- 
cant amount of electrical power suffices to raise tlie 
objects to a position where gravity can get in its 
work, and the long stretches of distance are then 
compassed by gently sloping rollway. 

Conveyors depending entirely on gravity naturally 
have their limitations, but in locations where the r(^- 
ceiving room is on the main floor and the storeroom 
in the basement they can be adopted in preference 
perhaps to any other type. There are also cases 




FIG. 79. COMBINED ROLLWAY, SCALES, AND CHUTE IN THE FIN- 
ISHED STOCK ROOM OF HOTALING, WARNER & CO., SYRACUSE, N. Y. 



I 




FIG. 80. MOVING STOCK BY MEANS OF OVERHEAD BELT CONVEYOR 
IN THE FACTORY OF J. B. STETSON CO., PHILA. 

361 



INTENTIONAL SECOND EXPOSURE 



w > 




L 



360 



PURCHASING AND STORING 



nearly all types can be arranged for variations in lo- 
cation changed in construction to suit the character 
of the material to be conveyed, any detailed discus- 
sion of the various problems met with in storeroom 
practice is out of the question here. 

Engineers and managers of industrial plants have 
of late been devoting considerable attention to tlio 
possibilities of harnessing the force of gravity to 
solve their trucking problems. Gravity is always 
ready to operate on the instant, twenty-four hours a 
day, three hundred and sixty-five days in the year, 
without attention. 

Wherever large quantities of regular objects are 
to be moved in a fairly steady stream from floor to 
floor downward, or from one level to a lower one on 
the same floor, some type of gravity conveyor usually 
can be devised which will handle the material rapid- 
ly, economically, and with safety to both goods and 
workmen. 

Even for moving materials from one point to an- 
other on the same level the gravity conveyor may he 
used when it is combined with short elevating sec- 
tions operated by individual motors; for an insigniii- 
cant amount of electrical power suffices to raise tlie 
objects to a position where gravity can get in its 
work, and the long stretches of distance are then 
compassed by gently sloping rollway. 

Conveyors depending entirely on gravity naturally 
have their limitations, but in locations where the re- 
ceiving room is on the main floor and the storeroom 
in the basement they can be adopted in preferene<^ 
perhaps to any other type. There are also cases 




FIG. 79. COMBINED ROLLWAY, SCALES, AND CHUTE IN THE FIN 
ISHED STOCK ROOM OF HOTALING, WARNER & CO., SYRACUSE, N. Y 




PIG. 80. MOVING STOCK BY MEANS OF OVERHEAD BELT CONVEYOR 
IN THE FACTORY OF J. B. STETSON CO., PHILA. 

361 



362 



PURCHASING AND STORING 



where a central storeroom has been locattnl at a suffi- 
cient height in one of the buildings so that all raw 
materials are elevated to such central stores and dis- 
tributed by gravity to the various departments of the 
plant, thereby eliminating subsidiary storerooms. 

One of the greatest advantages of the gravity roller 
conveyor system is its flexibility. By means of 
curves, switches, chutes, elevators, and other appli- 
ances the conveyors may be run around corners, 
through partitions and floors, and may be laid out 
practically wherever desired. Under the most favor- 
able conditions these conveyors will carry pa€kages 
with a smooth surface on a grade of only two and 
one-half per cent, but ordinarily a grade of at least 
four per cent is advisable. 

The uses of belt conveyors are so varied that there 
is hardly any problem involving the conveying of 
light parts or materials, over short or long distances, 
that cannot be solved by some form of moving belt! 
Even pneumatic conveyors and carriers are used to 
good advantage in many industrial establishments, 
and none of these methods should be overlooked in 
considering the transportation problems. 

Sectional Steel Bins and Shelving:.— An office with- 
out correspondence files would be helpless; yet, un- 
noticed, many supposedly well-equipped factories are 
rendered just as helpless through lack of efficient 
storage methods. Were the value of every square 
foot of storage space determined and the stock con- 
sidered as so many bins of pennies, nickels, and 
dimes, instead of rivets, nuts, and washers, the neces- 
sity of proper care would be quite evident. 








FIGS. 81 AND 82. METAL BINS IN THE STOREROOM OF THE 
PACKARD MOTOR CAR CO., ABOVE; AND IN THE BUICK 

MOTOR CAR CO., BELOW 
3G3 



364 



PURCHASING AND STORING 



Steel equipment for storage purposes is of many 
types. Small and valuable articles may be kept in 
lockers, and exceptionally heavy material mav need 
special construction, but generally speaking i^ost of 
the material kept in bins or racks can be stored in 
either the closed type, the open type, or the rack, 
type of receptacle. 

These can all be obtained in the unit system of 
construction which provides for ample flexibility in 
length, width and depth. The 3-inch vertical ad- 
justment of shelves and the approximately (i-inch 
horizontal adjustment of dividers permits the great- 
est economy in available storage space. This adjust- 
able feature affords a saving of 25 to 30 per cent in 
storage space when compared with the construction 
of the ordinary wood bins and shelving. Further- 
more, the simplicity of the construction permits easy 
erection by an ordinary workman, the only tool neces- 
sary being a screw driver. Another important point 
is that construction of this kind is a fire retardant. 
iNo building can be consider<'d completely fireproof 
when It is equipped with combustible wood bins and 
shelving. 

The Closed Type.-The construction of the closed 
type Figure 83, consists, first of flat steel backs 
which extend the entire height and length of the as- 
semblies. One back is necessary for each nnit and 
acts either as a back to a single face assembly or 
as a dividing wall in a double face assembly. The 
uprights are attached at right angles to the back 
with stove bolts through holes in a back flange and 
corresponding holes in the backs. The uprights and 





FIG. 83. CLOSED TYPES OF METAL BINS 



365 



366 



PURCHASING AND STORING 



•« 



backs are all punched for the attachment of shelves. 
The shelves are connected by means of stove bolts 
through holes in the side and back flanges. Thus, the 
uprights and backs each carry a portion of the shelf 
load. 

The standard bin construction is such that an as- 
sembly of plain shelving can be made into a bin con- 
struction by simply attaching a bin-front in connec- 
tion with the front face of the shelf. The bin-front 
and the shelves, being bolted to the frame, tie the 
entire construction together. This provides absolut<. 
rigidity, but does not prevent easy removal of an en- 
tire bin, nor the quick adjustment of the shelves. A 
3-ineh vertical adjustment is used which provides 
sufficient range for any storage space desired. 

Open Shelving.— This type of construction, Figur.. 
84 has a continuous opening through the assembly, 
and IS used when requirements call for the storage ol' 
a material which is to be handled from cither side 
Both faces are alike, and the design is such that th. 
complete assembly is self-anchoring. The uprights 
are formed from one piece of sheet steel, the front 
face of which is punched with holes for 3-inch adjust- 
ment of shelves. 

The shelf is formed from one piece of sheet steel 
with edges turned on four sides. The front face of 
each shelf is attached to the face of the uj)right with 
four bolts. This arrangement acts as a knee brace 
and provides for lateral thrust. In other words, each 
shelf IS so designed that when attached it adds to the 
stiffness of the entire assembly and thus effects a 
perfectly rigid construction. 




368 



PURCHASING AND STORING 



RECEIVING AND STORING 



369 



ItH 



11 



As shown by the illustration, the shelving is biiill 
on the unit principle and is simply made up of up- 
rights and shelves. 

A bin construction can be made up if desired by at- 
taching bin boards to the face of the uprights and 
along the front of the shelf by the use of stove bolts. 
Card holders can be attached to the faces of tho 
shelves by inserting prongs through the slotted holes. 

Racks.— The rack type of construction, as shown in 
Figure 86, is adaptable for the storage of Babbitt 
metal, spelter, drill rods, and so on, and is generally 
used m conection with the storage of dies, molds, pat- 
terns, cores, etc. 

It is composed of heavy gauge formed sheet steel 
uprights and a rack shelf attached to the uprights 
by means of stove bolts. The manner of attaching 
makes the rack self-anchoring. In the illustration 
the ends of the front face of the shelf are flat. This 
part acts as a small knee brace which, when attached 
to the upright, provides for lateral thrust. Each 
shelf contains four of these knee braces, and, there- 
fore, every shelf adds to the rigidity of the entire 
construction. 

The front face of each shelf is punched with slotted 
holes for the purpose of attaching card holders. The 
uprights are all punched for the vertical adjustment 
of shelves. 

The stock rack shown in Figure 87 is designed for 
the convenient and economical storage of rods and 
bars of steel, brass, etc. It is made in two styles— 
the single-hook, or wall pattern, and the double-book 
type. Both styles are furnished in sevenil lengths 



for stock of varyinig lengths. The unit idea is carried 
out in the construction, so that the rack can be ex- 
panded or contracted to meet changing requirements. 
The rack can be easily and completely knocked down 
when it is desired to re-locate it in another part of 
the storeroom. 

Hooks and tension bolts are of steel, the material 
best suited to withstand the combined bending and 
tensile stresses, while cast iron distance pieces of 
twice the crushing strength of steel sustain the com- 
pression due to load. The roll-up on the end of the 
hooks is important as it prevents the load from spill- 
ing off. It is impossible to overload the rack, and 
the entire space between hooks may be filled without 
causing undue stress. 

Spaces are provided to accommodate a large vari- 
ety of sizes without unduly mixing them. This elimi- 
nates the necessity of handling a great variety of 
stock before getting the desired size. End hauling 
of bars is eliminated and no valuable floor space is 
wasted thereby. The graduation in length of hooks — 
long at the bottom and short at the top — materially 
facilitates the removal of stock vertically where hoist 
and runway service is employed. 

The wall pattern type, as shown in Figure 88, as 
its name would indicate, is designed to be placed 
against the wall and is particularly adapted for use 
where floor space is limited. Pans may be provided 
with either type of rack between the uprights for ac- 
commodating pieces not long enough to reach be- 
tween the posts. Several lengths of pans may be 
used to obtain varying distances between posts. 



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372 



PUHCHASING AND STORING 



Open Air Storage. — The preceding discussion has 
been confined to interior storage facilities, but a 
storekeeper in some establishments has under his 
charge large quantities of materials, which are not 
kept under lock and key or are not stori^i in ware- 
houses, such as have been described. In foundry 
work, for instance, there would be coke, pig iron, and 
scrap iron. In the case of the pig iron, the yard 
should be arranged with stalls open at one end, or 
partitions only can be used sufficiently far apart to 
accommodate one carload in each compartment. Two 
or three of the pigs should have the car number 
painted on them as a means of identification should 
there be any trouble with the metal, either in its 
use in the foundry or when analyzed. 

With a travelling crane and magnet it is possible 
to keep pig iron and scrap in any kind of enclosure. 
It also enables all shipments to be segregated. The 
material can be stored in less space than when in 
loose, untidy, straggling heaps, and certainly it is 
under much better control. 

It is sometimes necessary to keep several kinds of 
foundry sand, if both brass and iron castings are 
made, both for machine molding and floor molding. 
Open covered sheds properly subdivided should be 
arranged for this material. Fire clay also should be 
stored in a similar way. The latter is not so suscep- 
tible to deterioration by exposure, but the sand 
should have protection from the weather, as should 
also limestone and sea coal. All materials of this 
nature should be under rigid control. There is abso- 
lutely no reason why stores of this character should 



RECEIVING AND STORING 



373 



not be subject to accurate record, but too often no 
records, or only remotely approximate ones, are kept. 

When large quantities of structural steel are used, 
it is, of course, not practicable to store it in the same 
building or in the same manner as small articles, and 
it may be necessary to detail one of the stores clerks 
to keep track of this material. An ideal arrange- 
ment is for the cars to be unloaded at one side of 
the building, the bars, angles, channels, and beams 
stacked in regular order according to size, and stock 
should be drawn from the opposite end of the stack. 
As such supplies usually pass directly to the saw 
bench, very little work is necessary in keeping a 
record as the cuts are made. 

Intensive Storing. — Using storage intensively and, 
at the same time, avoiding overcrowding or placing 
one class of material where it interferes with the free 
movement of another class, is a problem to tax the 
ingenuity of any storekeeper. In any discussion of 
equipment used in industrial storerooms, the subject 
can only be treated in a general way, unless one were 
to recite instances of unusual problems which have 
been overcome by some storekeepers. These prob- 
lems are individual, and solutions have to be found 
to meet the special conditions. A visit made to the 
storerooms of almost any large industrial plant will 
afford a demonstration of some clever device to solve 
intensive storing. 

It is common practice nowadays to use ^^s for 
some articles, instead of placing them in "bins or 
racks. Wall space which could not be utilized other- 
wise is made to serve a purpose. Some of these ar- 



374 



PURCHASING AND STORING 



RECEIVING AND STORING 



375 



tides, and also some of tliose in bins, whieli are 
drawn from stores in regular specific quantities are 
tied or bundled in these quantities. Thi^ saves de- 
lay in counting or weighing when the articles are 
requisitioned, and the material can be handed out 
without loss of time to anybody. 

In a large plant where steel billets are us(^d, the 
former custom was to dump them in hea])s, until the 
storekeeper evolved the plan of unloading them onto 
platforms which are stacked on top of each other by 
a crane. When it becomes necessary to use the bil- 
lets, the platforms are lifted by the crane onto self- 
propelled trucks and are transported to the rolling 
mill. This eliminates several handlings over the old 
method and economizes space. 

Such mechanical aids as barrel stackers and sack 
stackers are utilized to good purpose in many store- 
rooms, but it is still possible to see four or five men 
struggling with barrels filled with heavy material en- 
deavoring to stack them without the aid of theso 
appliances. Seventy-five per cent of this hibor could 
be saved by using the mechanical stackers. 

When an inventory of materials is taken, an in- 
ventory should also be taken of the non-productive 
labor used in receiving and storing the materials. 
Simply because a storeroom is devoted mainly to 
heavy materials it does not always follow that it is 
necessary to have brawny men to handle it. There 
are so many mechanical appliances to-day that physi- 
cal strength in the human being is, by reason of 
them, largely equalized. The majority of men who 
labor with their hands are not willingly mentally 



idle. They would just as soon work with their brains, 
but intensive, strenuous, mechanical, monotonous 
work dulls thinking. Sometimes a laborer, however, 
will work with his brain as well as his hands and 
produce a method of relieving the physical strain. 
There is ample room for this in some of the store- 
room operations. 



CHAPTER XVIII 
STORES INVExNTORIES 

Perpetual versus Periodic Inventories. -A short 
time ago a prominent technical journal d(' voted con- 
siderable space to a discussion of stores inventories. 
The principal argument advanced was that it is ad- 
visable to omit the regular annual or semi-annual 
inventory. Many opinions have been advanced from 
time to time on this subject, and as inventorying is 
a matter of vital interest to good stores keeping and 
as many misconceptions exist, it is essential to eluci- 
date the various points. 

A logical reason for the discontinuance of the prac- 
tice of taking physical inventories at periodic inter- 
vals of material and supplies in the stores, would be 
that the perpetual inventory represented the actual 
quantities on hand, or that it was so nearly accurate 
as to make the difference negligible betwc^en the ac- 
tual quantities and recorded quantities. It is im- 
portant that the perpetual inventory should indicate 
the true state of affairs, or should come as near it as 
possible, for all the stores clerical work revolves 
around it. It is the stores ledger; and tlni account 
kept with each customer in the sales ledger of a con- 
cern should not be more accurate than the account 
kept in the perpetual inventory of the debits and 
credits entered against each stores account. 

376 



STORES INVENTORIES 



377 



There are still to be found some manufacturers 
who keep no daily records, or perpetual inventory as 
it is called, of material on hand. They have some 
method of keeping track of material used in produc- 
tion work, and annually close the establishment for 
inventory purposes, at which time a general physical 
inventory is taken. In olden days such methods may 
have passed muster, but they cannot be tolerated 
under even ordinary conditions to-day. In intensive 
manufacturing they would be impossible, and nothing 
can be said in support of them. 

On the other hand, some manufacturers claim to 
have developed the perpetual inventory to such a 
high state of perfection that it is unnecessary to take 
any physical inventory. Let us examine the ad- 
vantages claimed by the adherent's of this system. 

The Perpetual Inventory.— This gives complete de- 
tailed information monthly, weekly, daily, or even 
hourly, if necessary, of the state of the material on 
hand, the rate of consumption, and the many valuable 
features essential in the exercise of purchasing and 
storekeeping which have been covered in previous 
chapters. These features alone would indicate that a 
perpetual inventory is imperative. 

A continuing ever-ready record being essential, the 
question which presents itself is, whether this record 
can be brought to such a state of accuracy and per- 
fection that periodic physical inventories can be dis- 
pensed with. 

In some manufacturing plants this has been done, 
and many advantages and savings are claimed for the 
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Instead of closing down the plant for several days 
or a week to take the physical inventory, a balance 
is struck of all stores inventory accounts in exactly 
the same way and at exactly the same time that bal- 
ances are taken of accounts payable and accounts 
receivable. 

One of the principal advantages claimed is that it 
eliminates the closing down of a plant and throw- 
ing out of employment hundreds, and perhaps thou- 
sands of workmen, involving them in a loss of ap- 
proximately two per cent of their annual income or 
earning capacity; while at the same time plant ex- 
pense goes on — for rent, interest, insurance and simi- 
lar charges do not cease while the physical inventory 
is being taken. The salary of every person engaged 
in the inventory work while production is stopped 
is a dead loss; for it cannot be distributed as a bur- 
den on the factory product, because nothing is being 

produced. 

Another argument put forward for abolishing the 
physical inventory, is that it is more likely to be in- 
accurate than the perpetual records, because the 
counting, weighing, measuring, and so forth, of the 
large quantities is very liable to be incorrect. This 
work is frequently performed under the pressure 
of time. The persons engaged on annual inventories 
often work long hours, and generally amid consider- 
able confusion which is apt to cause many errors. 

Those advocating the elimination of the physical 
inventory state that in actual practice a comparison 
of the actual results has showed several discrepancies 
between the annual and perpetual inventories, but 



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382 



PURCHASING AND STORING 



on re-counting the perpetual inventory was found to 
be correct in ninety per cent of the instances. More- 
over, the total discrepancies between the two inven- 
tories was less than $800 in a store on which the 
valuation was placed at nearly three quarters of a 
million dollars. This difference, of course, does not 
warrant the expense incurred in taking the annual 
physical inventory. 

It is a practice of some concerns to s(?t aside an 
amount every year- for the purpose of inventory ad- 
justment. This is done in much the same manner as 
a reserve for bad debts. Such a fund may never be 
called upon, but it is good sound business policy. 
Any such policy is equally applicable to any kind of 
inventory, hence it is not an argument for or against 
a perpetual inventory. 

Perpetual inventory figures, the advocates claim, 
are more reliable than those of a physical inventory, 
unless the latter are checked by duplicate? counting' 
weighing, and so on. If such a course is used, it 
amounts to practically the same as taking two 'in- 
ventories. But if the reliability of an annual inven- 
tory is dependent solely on one count or weighing, 
taken perhaps hurriedly, it is better to compile the 
annual statement of stores on hand from perpetual 
inventory balances. 

Finally by keeping the storeroom clean, by regu- 
larity and order in arrangement, by careful methods 
in receiving goods into and delivering them out of 
stores, the perpetual inventory if rightly planned for 
the character of the stores, can be brought to a high 
state of accuracy. 



STORES INVENTORIES 



383 



The Physical Inventory.— The advocates of an an- 
nual or semi-annual physical inventory claim that 
it is absolutely necessary to use it as a check on 
the perpetual inventory which has been running for 
a period of six months or a year, as the case may be, 
without any positive check. During this period there 
may have been hundreds or thousands of entries to 
one account, and it is not to be supposed that this 
amount of book-keeping can be done without errors, 
some of which might be serious. 

It is claimed that closing down for a period of 
about one week every year is a necessity in many 
manufacturing establishments— for repairs, altera- 
tions, replacements, etc.— and that such work can be 
done much better and more economically when the 



USED iq. 

JAN. 

FEB 

MAR 

APR 

MAY 

JUNE 

JULY 

AUG 

SEPT.. 

OCT 

NOV 

DEC 

TOTAL , 



PAST ODNSUMPTION 

U^D iq 

JAN 

FEB 

MAR 

APR 



USED iq. 

JAN 

FEB 

"MAR 

APR 



MAY : MAY... 

JUNE JUNE... 

JULY JULY... 

AUG.... AUG.... 

SEPT SEPT. . . 

OCT OCT.... 

NOV NOV.... 

DEC DEC... 

TOTAL TOTAL. 



J 



PIG. 94. REVERSE OF FIGURE 93, SHOWING METHOD OF RECORD- 
ING PAST CONSUMPTION 






I 



384 



PURCHASING AND STORING 



workmen are not around. Even if there is no work 
of this character to be done, it is considered advis- 
able to close down for a short period in llie summer, 
when many workmen are asking for vacations. These 
vacations can then be disposed of practically all at 
one time, and a physical inventory taken in the work- 
men's absence. 

Again, there are certain items used in manufactur- 
ing in reference to which a perpetual inv(3ntory can 
never be very accurate. Bulk material, such as sand, 
coal, fireclay, scrap iron, and so on, cannot be as 
correctly determined as regards their incomings and 
outgoings. For these it is imperative that physical 
particulars should be ascertained to enable calcula- 
tion to be made for an inventory of any kind. 

Furthermore, knowing that at a regular date a 
physical inventory will be made, induces care in 
keeping the perpetual inventory. If this check were 
discarded, the clerks keeping the perpetual inventory 
would be inclined to carelessness, and no great re- 
liance could be placed on its accuracy. It is also 
claimed that the physical inventory has a *' house- 
cleaning" value, in that it brings to light some ma- 
terial or articles which have been placed in the wrong 
bins or receptacles. 

Finally, for legal reasons a physical inventory is 
advocated, because if it was ever necessary to go into 
court, a perpetual inventory would be ridiculed as 
a true statement of affairs. 

Ideal Inventorying.— The foregoing remarks cover 
the principal pros and cons put forth in respect to 
keeping stores records by the advocates of both sya- 





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386 



PURCHASING AND STORING 



STORES INVENTORIES 



387 



terns. The ideal inventory, in my opinion, is un- 
doubtedly the perpetual record, posted promptly, 
maintained accurately and absolutely reliable. So 
accurate should it be that one can walk to any bin 
or rack and find there the exact quantity of material 
shown at that time on the inventory records. 

Infallibility is an impossibility while the human 
factor has to be considered, and it is not to be ex- 
pected that the many thousands of clerical entries 
on the records, and the corresponding number ol* 
manual operations in receiving and delivering the 
goods, can be accomplished without error. If this 
could be done, we should have the ideal record, show- 
ing always the exact state of every stores account. 

The manner in which stores records are compiled 
and the documents from which they are written up 
do not as a rule permit of such accuracy as the 
entries made in the ledger accounts with debtors and 
creditors, yet no accountant would think of taking 
as correct the items posted to these accounts without 
the check of a regular trial l)alance. It is essential, 
therefore, that the perpetual inventory be also sub- 
ject to some kind of check. While it may be possible 
that manufacturers of certain articles have found it 
possible to eliminate the semi-annual or annual physi- 
cal inventory, it is probably because the nature of the 
product manufactured does not call for a very large 
variety of raw material, or it is such material that 
accurate records of it can be maintained with com- 
paratively few clerical entries. 

The question of the losses sustained by closing a 
manufacturing establishment for a few days or a 



week, in order to take a physical inventory, is a 
matter for individual consideration. It is possible 
that some plants have quiet periods when no loss 
would be incurred by closing down, and at such times 
a physical inventory could be taken. These dull 
periods usually come around midsummer or toward 
the end of the year, when books are generally 
balanced; but even if this is not so there is no in- 
superable objection to a general inventory being 
taken at any time of the y^ar that is convenient. A 
physical inventory is really a check on the perpetual 
inventory, and if there is any discrepancy between 
the two, what is going to be done about it! The 
cost accountant has not compiled his records from 
the physical inventory but from the same documents 
that have been used in writing up the perpetual 
records, so that from certain viewpoints it is im- 
material whether an inventory is taken, or not. 

The legal reasons which are said to exist for tak- 
ing a physical inventory at the same time that the 
financial balance sheet of a concern is made up, do 
not exist in fact but only in imagination. If proper 
perpetual records are kept, and the documents pre- 
served which were used for compiling the records, 
then these are just as good evidence as the books 
showing the debits and credits with customers. 

It has been shown that the necessity exists for 
checking the stores book-keeping with the actual 
stores contents, and that it may be done by regular 
periodic physical coimt, providing it does not entail 
a loss of profitable productivity. To produce at a 
profit is what a manufacturing establishment exists 



388 



PURCHASING AND STORING 



for. To suspend this function by closing down oper- 
ations could not be considered as good policy. 

The alternative to a periodical inventory is to 
check the clerical records by a physical method at 
convenient times, when it will not disturb production. 
In establishments of sufficient magnitude it is pos- 
sible that the men engaged in inspecting raw mate- 
rial on arrival or similar work in the shop could be 
assigned to this work, if it is desired to have some 
one not actually taking part in the manual operations 
of the stores. This is some protection against collu- 
sion, but it may be found that the regulai* employees 
of the stores can be relied upon to take the physical 
inventory at such times as they are not fully occupied 
with the routine work. 

By following this practice closely, and covering all 
of the stores within certain prescribed pmods, the 
clerical records will not go very far wrong without 
the discrepancies being quickly discovered. Other 
requisites in inventorying are a clean storeroom, well 
kept and well arranged bins and receptacles, and 
careful, accurate, but alert help in both manual and 
clerical operations. 

Posting Values on Stores Inventory.— It is not a 
general practice for the records kept in the stores to 
cover the value of the stock, but this is sometimes 
found advisable, especially in smaller concerns, and 
an illustration of a concise method of doing this is 
shown in Figure 96. In connection with the value 
of raw material and the pricing of it for cost pur- 
poses there is some difference of opinion in the dis- 
position of cases where prices vary. 



STORES INVENTORIES 



389 



Article. 



-Size. 



.Bin No.. 



Description 
Unit 



.Max.. 



.Min.. 



Verified 



ORDERED 



Order No. 



Quantity 



RECEIPTS & DELIVERIES 



Date or 
Req'n No. 



Quantity 



BALANCE 



Amount 



1 



Quantity 



Annount 



UNIT 
PRICE 



FIG. 96. INVENTORY SHEET FOR rSE WHEN ENTRIES ARE NOT 

NUMEROUS 
The receipts should be posted in red inli, and added to the previous 

balance. 

For example, let lis assume that 100 units are 
received into the stores at 20 cents each, and 40 are 
issued to the shop, leaving a balance of 60. An 
additional quantity of 80 is then received into the 
stores at a price of 25 cents each, making a balance 
in the bins of 140. When further issues are made 
to the shop, at what price should they be charged 
out? 






390 



PURCHASING AND STORING 



STORES INVENTORIES 



391 



It is a practice of some establishments to average 
the price as soon as there is any change. In the 
example given above with 140 units in the stores, 
there would be 60 at 20 cents and 80 at 25 cents, or 
an average price of 22.8 cents. Is it correct or good 
practice to use the average price for the next delivery 
from the stores? 

If 25 cents each represents the lowest market price, 
then the quantity on hand before the last shipment 
was received has appreciated 5 cents in value. Some 
concerns would charge them out of the stores at the 
advanced figure, but such practice may be dismissed 
without discussion. It is not a correct method for 
figuring production costs; and in so far as the stores 
account itself is concerned, it would simply mean 
that this account w^ould show either a profit or a loss 
according to market fluctuations. As already pointed 
out this is not good policy. 

Those who advocate that stores prices be averaged, 
argue that it is better to have one price apply on all 
material in the stores of one kind, it simplifies the 
price, it is less liable to lead to mistakes, and it ren- 
ders the calculations connected with the annual or 
semi-annual balancing much easier. 

The best practice, however, is to charge out the 
hundred units at a price of 20 cents and the follow- 
ing 80 at 25 cents. The theory is that all articles are 
taken from the bottom of the bin and that the 
material which has been longest in the stores should 
be used prior to later receipts. There is another and 
more important reason for this method of procedure. 
An order may be accepted from a customer, or e 



















NUMBER 




P.BCLASS 


BILL'G 


PRICE 






PLATE INV CLASS SELL C 


PRICE 






MAX 1 


MAX 
MIN ' 




MAX 1 


MAX 








MIN 




Mm 








DATE 


IN 


OUT 


8AL 


OAIE 


IN 


OUT 


BAL 


DATE 


IN 


OUT 


BAL 


DATE 


IN 


OUT 


BAL 








uoutur 


fOttWARO 






BtOUHHI 


wtwfo 






aHOUQHT 


loimtiiD 






itwen' 


roti'n 














































































































































































































































































































































































































































































1 
































































































































































































































roimtui) 








Kumtm 


I- 






fOitm»iiti 










— 1 



FIG. 97. CARD FORM OF PERPETUAL INVENTORY 

stock order is issued for the shop, to make up a 
number of finished parts, in either case this is done 
on the basis of the price of raw material then in the 
stores or the price at which it can be bought. It is, 
therefore, only reasonable and fair that this order 
should be executed with raw material priced on this 
basis, and not on an average price, which may apply 
on some later order. 

Summary.— The man who knows most about his 
business seldom fails, and the one who knows least 
is usually the one who does fail. Nothing is of 
greater importance than a well kept perpetual in- 
ventory for advancing one's knowledge of the con- 
dition of that portion of one's investment represented 
by the stock of goods and materials in the stores. 

Perpetual inventories require perpetual attention. 
Cost authorities are practically united in favoring 



h 



392 



PURCHASING AND STORING 



them. The difficulties in handling them have been 
largely due to a lack of attention on the part of 
employees. The benefits of maintaining a perpetual 
inventory having been discussed, the question of keep- 
ing accurate records can be covered by some very 
simple rules. 

First: No material should be received into the 
storeroom without some form of advice in the shape 
of receiving clerk's report form as shown in **C '' 
Figure 38, page 240. These tickets or slips are used 
to make the debit entries. If material is allowed to 
pass into the stores without some such document, no 
record might be made, or if one was it might be in- 
correct. 

Second: No material should be allowed to leave 
the stores without a properly drawn requisition which 
must clearly indicate the quantity taken from stores. 
For instance, if the stores inventory for a certain 
article is kept in units of weight and the requisition 
asks for a number of the articles, it must be (converted 
into units of weight before the articles leave the 
stores. These documents are used for making the 
credit entries, and their preservation is vital. 

Third: Accuracy in posting entries is essential, as 
also is accuracy in delivering the correct quantities 
called for. Inaccuracies in the latter function would 
probably be discovered by the recipient of the mate- 
rial, but the clerical work of posting entries should 
be checked daily, unless a check by physical count 
is made at intervals frequent enough to enable the 
clerical entries to be checked back should any dis- 
crepancies appear. 



STORES INVENTORIES 



393 



Fourth: Perpetual inventories should be treated as 
cash is treated. Cash is verified often, or should be, 
and an inventory should also have regular periods 
for verification. 

Fifth: The documents indicating the incomings 
and outgoings of material pass into the possession of 
the cost department, but they should be preserved 
there a sufficient length of time to cover the period 
when they may be needed to check back; that is, 
until a physical count is made. 



7 



CHAPTER XIX 

KECEIVING, INSPECTING, AND STOEING 

Receiving: Material at the Factory.— In Chapter 
XVI it was necessary to refer to the receipt of ma- 
terial and supplies purchased in order to explain the 
method of securing approval of the invoice, but the 
subject must be discussed more fully to cover com- 
pletely the connection between the purchase of goods, 
their arrival at the factory and final disposition. 

Nearly everything received at a manufacturing 
establishm'ent passes into the control of tlie store- 
keeper. In very small concerns he may also act as 
receiving clerk, or this work may be combined with 
the shipping clerk's functions. But in larger estab- 
lishments the receiving clerk may stand alone, un- 
attached to any department. This is the preferable 
position, because his duties are closely allied to the 
purchasing, accounting, and storekecping work, and 
it is desirable for him to be strictly neutral and not 
to have his movements controlled by any one of these 
departments. He can then serve them all with equal 
fairness. 

Many concerns refuse to permit the receiving clerk 
to have a copy of the order, thinking thai, having 
this in his possession, it may have a tendency to relax 
his vigilance. Not knowing the quantity ordered he 

394 



RECEIVING, INSPECTING, STORING 395 

would be compelled to scrutinize the incomings more 
closely, and will get no help in doing this, such as 
he might receive from a copy of the order. This is 
a practice, however, which cannot be commended. If 
the receiving clerk is lax in his work and so little 
dependence can be placed upon him as is implied, 
then he is scarcely the man for the job. 

There are good reasons for giving the receiving 
clerk a copy of the order. In the first place, in mak- 
ing his report, he must identify each item on his 
receiving slip with an order number, otherwise the 
purchasing department will be unable to check the 
receipt of material with the order. Also, without 
such a copy the receiving clerk will not know to 
which department the goods belonged. It would 
mean a great deal of work to investigate these mat- 
ters after getting the receiving clerk's regort. Fur- 
thermore, lacking the information, the receiving clerk 
might receive goods not ordered at all, or goods that 
had been cancelled, or quantities in excess of the 
order. Any one of these would be sufficient to tangle 
up matters so badly that, if nothing worse happened, 
it would mean a lot of trouble and expense for the 
purchasing department to straighten matters out. 

I am firmly of the opinion that the receiving clerk 
should have a copy of the order, and that he should 
record all receipts on a form similar to Figure 59, 
page 286, or on any suitable form which would serve 
the same purpose. It should be in triplicate. The 
original can go to the purchasing department, and 
can, if necessary, be attached to the invoice. One 
copy can follow the goods to the inspector and finally 



396 



PURCHASING AND STORING 



to the storekeeper, or if the goods go direct to some 
department without passing through the stores this 
copy would still follow the goods. The remaining 
copy stays with the receiving clerk and can be filed 
in a numerical sequence which should also be in the 
order of dating. The order of dating is the more 
important, because it is sometimes necessary to ask 
the receiving clerk questions regarding goods re- 
ceived, and invariably the date is used to enable him 
to look up his records. 

Records of Goods Received.— Figure 38-C, page 
240, illustrated a method of recording receipt of ma- 
terial on a copy of the purchase requisition and 
Figure 60, page 287, showed a copy of the purchase 
order to be used for the same purpose. If the receiv- 
ing clerk did not have to keep any records for his 
own referqnce and could simi)ly O.K. the copy of 
requisition or the copy of order and pass it along, 
this scheme would involve the least amount of work. 
But if he has to keep records it only means duplica- 
tion of some portion of his work. Another bad 
feature is that so very often goods are not received 
exactly in accordance with the requisition and order. 
They may come in several shipments, which means 
that subsidiary forms must be used for recoi-ding the 
earlier receipts, withholding the copy of requisition 
or order until final delivery is made. In actual 
practice this is what occurs with the use of the form 
shown in Figure 60. 

An illustration is given in Figure 98 of a form for 
recording receipt of material. In this casci the re- 
ceiving clerk is under the jurisdiction of the purchas- 



RECEIVING, INSPECTING, STORING 



397 



I nS S-B-IMM 



WARNER SUGAR REFINING COMPANY 

PURCHASING DEPARTMENT 

EDGEWATER. N. A 



.»»- 



We hMyt ihb day recewed in good coodidoo good* at called loc « «he 
foOowing requisitioiu and order*. 



Signed- 



Req. No. 



Order No. 



MATERIAL RECEIVED 



By whom delivered 



FIG. 98. FORM USED BY WARNER SUGAR REFINING CO. FOR 
RECORDING RECEIPT OP MATERIALS 

ing department. Another illustration is given in 
Figure 99. This is more nearly in accordance with 
the ideal method of recording receipt of material, 
because it carries the signature of the person who 
is responsible for approving quality. It is used in 
triplicate, one copy following the goods and one re- 
maining with the receiving clerk. 

To summarize receiving conditions: The receiving 
clerk should be independent of any department; he 
should have copies of all orders for goods he will 



398 



PURCHASING AND STORING 



Rer'ri 


1Q From 


Quantity 


Material 


Purchase 
Order No. 
































Receivin 


g Clei 


^k 


Quality 


F.O.B. 




Quantity 


Freight 


Price 


Mfg. No. 


Extensions 


Req. No. 


Job No. 


Charge To 


Class 


Amount 


























































1 














Approved Total 













FIG. 99. FORM FOR RECORDING RECEIPT OF MATERIAL 

ultimately have to receive; lie .should make a record 
of these receipts on a form in triplicate, noting any 
freight or delivery charges; he should r(ii)ort the 
arrival of goods promptly to the purchasing depart- 
ment and should pass all goods without delay through 
the inspector's hands to the storeroom, or* direct to 
the interested department. 

Value of Inspection.— Inspection is too often the 
weakest link in the chain of activities connected with 



RECEIVING, INSPECTING, STORING 399 

buying and storing material. Poor finish or other 
superficial defect, incorrect size, irregularity in 
gauge, and so forth, should be detected at the entry 
of the material into the establishment and not post- 
poned until it has passed into the production depart- 
ment. When it reaches that department there should 
be some positive assurance that it is equal in all 
respect to the standard ordered. Delays at this point 
of the progress through the manufacturing process 
might prove very costly. 

Another reason for not delaying inspection is that 
it is obviously incumbent on the buyer to advise the 
seller of any defects immediately on arrival of the 
goods, or within a reasonable period. If this were 
not done it would be very difficult, in some cases, to 
get the sellers to take the goods back or to get any 
adjustment. The practice of receiving all kinds of 
materials and supplies into a manufacturing estab- 
lishment and simply counting, measuring, weighing 
them, and then passing them along for consumption 
or use is far too common and cannot be too greatly 

deplored. 

When discussing this subject, I have been met with 
the objection that it is not possible for many manu- 
facturing concerns to maintain a receiving depart- 
ment, an inspection department, and a storeroom as 
separate entities. This may be true, but it is no 
reason for not properly examining and inspecting 
all goods received for use in the plant. 

Inspecting Methods.— Every establishment, what- 
ever its size, must have some person or persons to 
receive, inspect, and store material. In very small 



400 



PURCHASING AND STORING 



concerns the functions can bo combined in one man 
who should be capable of determining inspection 
questions. In large establishments the function of 
receiving and inspection can be combined, while in 
still larger plants the three activities can be entirely 
separated. 

Inspection means the detection of poor quality, 
such as can be discovered by close observation or 
some simple tests; the detection of irregularity in the 
size of small articles; the measuring of gauges and 
sizes by simple instruments, such as micrometers, 
calipers and gauges. An examination should be made 
for flaws and poor finish; also whether goods have 
deteriorated from atmospheric conditions, poor pack- 
ing or exposure to the weather. In fact the inspec- 
tion of raw material should cover everything except 
such tests as may be necessary to carry out in the 
chemical laboratory or physical testing room. 

The two latter methods should be applied to all 
materials which the technical staff has previously 
decided are vital in production work. Th(» inspector, 
upon notification of the material which is to undergo 
these tests, should send as many samples to the chem- 
ical or testing room as required, properly identifying 
them with the order and shipment to which they be- 
long. 

Naturally there must be some means of knowing 
that goods have been inspected and, after the chem- 
ical or physical test, a form similar to Figure 100 
should be used. This should be in triplicat<i or quad- 
ruplicate as may be necessary. In any cas(i the pur- 
chasing department and production department should 



RECEIVING, INSPECTING, STORING 401 



REPORT OF TEST 



Purchase Order No.. 



Date. . 



NOTE;- Refer to purchase order for nature of test 
The material listed below is offered for testing purposes 



Date Received 



Quantity 



Material 



Car No. 



RESULT OF TEST 



Copies To 



Signed . 



L 



PIG. 100 REPORT OF CHEMICAL OR PHYSICAL TEST OF INCOMING 

RAW MATERIAL 

each have a copy It is not necessary that a special 
form for the regular inspection should follow the 
receiving clerk, because the copy of receiving clerk's 
report would follow the material and as it passes the 
inspector he would sign the report in the alloted 



402 



PURCHASING AND STORING 



space, or use a rubber stamp reading *Mnspected'* 
with his initials after it, am\ pass the report along 
with the goods to the storeroom. 

Receiving Material Into Stores.— The raw material 
and supplies, after passing the inspector, are received 
into the stores. They should then be promptly placed 
m their proper receptacles or in the spaces allotted 
to them. This is a feature of stores handling which 
needs close watching by the chief storekeeper. When 
goods are to be taken out of stores, delay should not 
be tolerated, because usually a messenger or carrier 
is waiting. Incoming material is too often allowed 
to accumulate on trucks or in piles until, presumably, 
a more convenient time can be found foi- disposing 
of it. 

Emphasis has already been placed on the import- 
ance of the manual operations and the necessity of 
their being just as accurate as the clerical work. If 
articles of any sort are allowed to remain scattered 
near the stores entrance, even for a short period, it 
is only natural that if a requisition be received for 
some of the same articles, it may be filled in the most 
convenient manner from the scattered heap instead 
of properly from the bin. 

Finished Material.— In some establishments finished 
parts go directly to the assembling room. Others 
keep them distinct and separate from the raw ma- 
terial stores. While still others incor])orate the 
finished parts stores with the raw material and sup- 
plies. The latter course is preferable, as a saving 
can be effected both in the manual and in the clerical 
help, as well as in storage space and equipment. It 



RECEIVING, INSPECTING, STORING 



403 



should be recognized, however, that finished material 
may travel a somewhat different course from raw 
material in its exit from the storeroom. This point 
should be among those considered in deciding the 
location of the storeroom. 

Finished material is of two kinds: it is either a 
component part of a machine and not salable except 
with the machine, or it may be a finished marketable 
article. The former is usually designated a finished 
part, while the latter is known as finished stock and 
is sometimes kept in a finished stock room. This 
item includes assembled machines, that is, the product 
of the factory ready for shipment. 

As far as storage problems are concerned there is 
no radical difference in either the manual or clerical ^ 
work connected with the storage of any of these 
articles. They are subject to the same regulations 
as the raw material — their entry and exit must be 
properly recorded under the same conditions and in 
a similar manner. 

Storing^ Material. — There are some considerations 
common to any storeroom. For instance, material 
which is frequently called for should be within easy 
reach, and heavy material if it is not allowed to 
remain on platforms, as described in Chapter XVII, 
should be stored at a convenient height to be loaded 
upon a truck. The alleyways should not be too 
narrow, as the racks darken them, and insufficient 
space will make it awkward to get material out 
promptly. 

A common fault is to find articles of the same kind 
in more than one stock bin. The old style of rigid 



404 



PURCHASING AND STORING 



I 



shelving and divisions was inelastic, and when the 
stock happened to be increased beyond the capacity 
of the bin allotted to it an additional location had 
to be found. This might be at some distance, but 
even if it was adjacent there was always the danger 
that its location would be overlooked. With adjust- 
able shelving and racks, storing is greatly simplified. 
The illustrations in Chapter XVII show that there is 
no limit to the width or height of adjustable bins. 
Whenever the stock increases to a point where the 
space allotted will not take care of it, the extreme 
flexibility of the shelving permits of any necessary 
increase, so that all articles can be placed in one 
receptacle. 

Again, if more than one bin or location is assigned 
to an article, the storekeepers are more apt to omit 
an item in filling a requisition, as they may find that 
one bin is empty and fail to remember that there is 
more of the same article in an adjoining bin. Then 
too, the use of more than one location for the same 
article tends towards the accumulation of shelf-worn 
or old stock. The most convenient location will in- 
variably be approached first and the more remote 
one neglected. Such double locations mean that the 
helpers have more things to remember, and naturally 
leads to a larger percentage of errors. Stress has 
been laid on this feature of storing, for my experi- 
ence has proven it to be prolific of exceptionably bad 
situations and conditions. 

Identifying and Locating Material.— All bins should 
be numbered, and all tiers should be either lettered 
or numbered, or both. In fact, all receptacles should 






RECEIVING, INSPECTING, STORING 



405 



have some identification mark which should be en- 
tered on the perpetual inventory as invariably as 
though it were the address of a customer in the sales 
ledger. In the illustrations given in Chapter XVII, 
several schemes are shown. A very good system is 
the use of metal flags distinctly lettered or numbered 
attached to the framework of the receptacle. 

In all of the illustrations shown it will be noticed 
that card holders are furnished with the bins. These 
should unfailingly be utilized for their intended pur- 
pose. I have seen men storing small articles in the 
storeroom approach a bin, extract one of its contents, 
match it up with the new goods, and then, if super- 
ficially they corresponded, dump the new lot in with 
the old. 

No matter what the article it has a name, size, or 
some distinguishing characteristics, and there should 
be a place for it properly provided with a distin- 
guishing card. Even the partitioned spaces in the 
yards should be numbered or identified. If this is 
not done it is so easy to forget which location con- 
tains a certain carload of pig iron, or where some 
lumber was stored. Hence when it becomes neces- 
sary to identify the shipment it cannot be done posi- 
tively. 

Material Returned to Stores. — If for any reason it 
becomes necessary for the shop to return material to 
the stores, a credit requisition should accompany it, 
designating the order on which it applies and any 
other particulars required by the cost accountant. 
These instances occur with the curtailing or cancel- 
ling of orders by the production department. 



406 



PURCHASING AND STORING 



Some departments may also have a surplus quan- 
tity of supplies from time to time. It is far too com- 
mon a practice to allow these to remain in the 
department, or to return them to the stores without 
any memorandum. The result is that th(iy do not 
get on the records. Insistence is again placed on th(» 
absolute necessity of having a receiving memorandum 
for everything going into the stores. If this is not 
done, the clerical records surely will not be posted 
with the entries, and proper credits to tlie depart- 
ments or production will not appear in the cost 
accounts. Figure 101 illustrates a form which can 
be used for all supplies and raw material returned 
to stores. 

Scrap. — The remarks in the two preceding para- 
graphs apply with equal force to all scrap. Such 



To apply on order no. 



CREDIT REQUISITION 

Material, Supplies or Scrap returned to Stores 
Date. 



QUANTITY 



DESCRIPTION 



SIZE OR PAH. NO. 



From Dept No.. 
Delivered by — 



Foreman 



Received by 



PIG 101. CREDIT REQUISITION 

Everything sent to the stores from the shop or any department 
shoHld be accompanied l)y a form similar to this. 



RECEIVING, INSPECTING, STORING 



407 



material should pass into the possession of the store- 
keeper at the earliest convenient opportunity. Some 
scrap has a very considerable value, and as much 
attention should be paid to its care as is paid to new 
raw material, hence the perpetual inventory should 
show a record of all scrap. It is the practice of some 
concerns to send scrap to the shipping clerk; but this 
cannot be recommended, for it should appear in the 
inventory and it is not always wise to sell at once. 

On the receipt of scrap, an advice should be sent 
to the purchasing agent, for he should have control 
of the sale as he is best fitted to know the most 
favorable market and the best time to sell. It is 
possible that the disposal of scrap might be delayed 
several weeks or even months, and in the meantime 
the only proper place for it is the storeroom. 

Obsolete material should be treated in a similar 
manner to scrap, and an advice similar to the form 
illustrated in Figure 102, should be sent to the pur- 
chasing agent. The storekeeper should allocate some 
portion of his storage space for all scrap and obsolete 
material, keeping it entirely separate from the new ma- 
terial and in a location where it will not encumber the 
free movement of the active storage items. 

Stationery Stores. — The average business house is 
more wasteful with stationery than with any form 
of supplies. The percentage of concerns which keep 
no records of such stock is extremely high. A great 
many establishments keep their stationery stock in 
a cupboard or some similar kind of receptacle, and 
most of the others keep it in the general office and 
hand it out on a verbal request. 



408 



PURCHASING AND STORING 





HatP 


To the Purchasing Agent 




The material listed below is now 


in the stores and is to be sold as early as possible 


Quantity 


Material 


Condition 




* 




Received from Dept. No. _ 






- 


Storekeeper 



PIG. 102. REPORT FROM STOREKEEI'ER TO PURCHASING AGENT 
THAT SCRAP OR OBSOLETE MATERIAL HAS BEEN RECEIVED 

The general storekeeper should have charge of all 
stationery, including pens, pencils, ink, paper fas- 
teners, desk pads, inkstands, carbon paper, and so on. 
Important savings can be effected by competent con- 
trol of everything of this nature. Standardized office 



RECEIVING, INSPECTING, STORING 409 

furniture should be adopted, and the desks and chairs 
should be given form numbers. Pencils, paper fas- 
teners, inkstands, etc., should all have form numbers. 
These are essential for identification and are highly 
effective in reducing the number of varieties in use. 
A copy of every printed form used should be 
posted on a loose-leaf sheet and fastened in a binder. 
The sheets should be of such size that the form num- 
ber and name of form may be written at the top and 
the purpose of the form and detailed instructions as 
to its proper use may be written below. Such binders 
become extremely valuable in educating new em- 
ployees in the system in use. A duplicate may be 
kept in the purchasing department and will be found 
very useful in making purchases. It is easily kept 
up to date, is always at hand for reference, and the 
system of the establishment can be studied at any 
time. 



CHAPTER XX 



DISTRIBUTION OF MATERIAL FROM STORES 



Delivery Problems.— Probably the most important 
activity in connection with the physical operation of 
raw material stores, is the delivery or distribution 
of them to the various applicants. Material may 
come in in very large quantities and it may go out 
in very small quantities. Incoming material should 
be put into the proper receptacles promptly, but it is 
not so imperative as delivering outgoing material 
immediately upon the receipt of an application. 

With the larger number of operations there is more 
danger of mistakes. Moreover, the delivery records 
must be posted promptly so that close track may be 
kept of the stock. The assistants engaged in this 
work must be thoroughly conversant with the stock 
and must be able to make delivery without delay. 
They must be able to scrutinize requisitions and de- 
cide whether they include all tlie requisite informa- 
tion. They must also see that the requisitions are 
signed by a forman or other person authorized to 
order material from the stores. 

The question of authority to requisition material is 
most important. The men empowered to do so should 
be designated by the general superintendent or some 
person in authority. Irresponsible persons should 

410 



DISTRIBUTING MATERIAL 



411 



never be given authority to withdraw stores. If the 
raw material is small in bulk and high in intrinsic 
value, serious losses might occur. There is or should 
be, however, complete control in the shop of all 
material drawn from the stores for production pur- 
poses, and any excess or waste should be quickly 
discovered. But prevention of overdrafts on the 
stores is better than rectification after mistakes are 

made. 

With all kinds of supplies and small tools, persons 
without a sense of responsibilty could obtain from 
stores much larger quantities than necessary, as these 
are more difficult to control, the ultimate use being, 
in many cases, general and not charged directly to 
a production order. It is undoubtedly in connection 
with these that strict supervision is necessary. 

Form of Requisitions.— The requisitions or orders 
on the stores for withdrawing material vary greatly. 
These variations are caused by differing production 
methods or cost accounting systems. As far as the 
operation of the stores is concerned the variations 
are not of great importance, except that in certain 
particulars they must conform to stores requirements. 
The essential features are a clear and unmistakable 
description of the material, for what purpose it is 
required, an authorized signature, correct dating, 
and, possibly, sequential numbering. 

These documents do not remain permanently in the 
storekeeper's possession, but after the proper entries 
are made in the stores records they pass along to the 
cost accountant who is more vitally interested in 
their final disposition and preservation and who 



W L 



412 



PURCHASING AND STORING 



utilizes them in connection with other documents and 
information in compiling records of costs. It is pos- 
sible, therefore, that the cost department would 
desire the requisitions on the stores to be uniform 
with, or bear some relation to, the other forms they 
may be using. 

Although the actual form used may not be of great 
importance as long as it embodys certain features, 
still the provision and delivery of material is im- 
portant and calls for some elaboration in detail, for 
the whole of the preceding discussion has been lead- 
ing up to this function and the fruits of good pur- 
chasing and storekeeping should be apparent at this 
point. 

Figure 103 illustrates a form used by the Otis 
Elevator Company in withdrawing material from 
stores. These forms are in duplicate, one copy being 
retained by the stores department and one by the 
department receiving the material. Another form 
used for a stock order or jobbing order is illustrated 
in Figure 104. The latter is really a copy of the 
shop order and contains a list of the material re- 
quired in the space designated. 

Shortages. — Assuming that the material is in the 
stores and delivery can be made at once, the oper- 
ation is simple and the transaction can be quickly 
closed and disposed. But there are times, and they 
are increasing in frequency with recent conditions, 
when only part of the material called for can be de- 
livered. There then exists a shortage, and a ** short- 
age" form like that shown by Figure 105 is issued 
by the storekeeper. 



DISTRIBUTING MATERIAL 



413 



Certain employees, known as -shortage chasers, 
are continually following up the progress made on 
orders in the various departments, and if any depart- 
ment fails to get its portion of the work done on the 
appointed date through lack of raw material it must 



MATERIAL REQUISITION 



Order No 

To Dept. No. 



Req. No. 



Date. 



Deliver with this order to dept. no. 



To be used for 



Qty. 



Patt.-Sym. 

Number 

or Size 



Description 



1: 



Foreman 



riG. 103, MATERIAL REQUISITION 



I 



414 



PURCHASING AND STORING 



have a shortage form issued by the storekeeper show- 
ing this lack. When the chaser discovers tliis con- 
dition he will immediately apply to, or literally he 
will ** chase," the storekeeper until the material is 



Order No. 
Entered— 



Wanted 



STOCK ORDER 

Material in Stock 
or Ordered On _ 



For. 



Due 



ORDER 



MATERIAL REQUIRED 



Stock Ready for Delivery in Department No By_ 



Date. 



Dept. 



Del. to 
Dept 



Operations 



Time 



To 

Finish 



Tools 



Jigs. Etc. 



Jigs. Etc. 
Stored in 



Date 
Rec'd 



Number of Pieces 



Rec'd 



Spoil- 
ed 



Defect 



NOTE: If Dates as Listed Cannot be Met. Return Order to Planning Depart,nent 



PIG. 104. STOCK ORDER 



DISTRIBUTING MATERIAL 



415 



SHORTAGE 



Date. 



Customer 

Order Calls for. 



Order No 

Date Wanted. 



Amt. 



Name of Part 



Sym. No. 



Shop No. 



Fdy No 



Pur. No. 



Issued by. 



Department . 



PIG. 105. SHORTAGE FORM 



obtained and the shortage made good. Obviously 
the storekeeper has recourse to the purchasing agent 
to supply his peeds. There may not be any blame 
attached to any individual for the insufficient sup- 
ply of material, but undoubtedly the condition occurs 
too often and its entire elimination is highly desir- 
able. This feature has already been fully covered 
under the discussion of maximum and minimum 
limits. 

Deferred DeUveries.— All the material specified on 
a stock order may not be called for at one time, or 
the date specified for obtaining the material from' the 
stores may be much later than the actual date of the 
order. This creates a condition known as an **ap- 



416 



PURCHASING AND kSTORING 



parent" shortage. This differs from a real shortage 
because, although the material is requisitioned, it is 
still in the stores. Sometimes these ** apparent'' 
shortages are somewhat difficult to handle in such a 
way as not to accumulate too much stock and yet 
have sufficient for current needs. 

Several ways may be employed to take care of this 
condition, and the one used will depend largely on 
how often the condition occurs and the quantity of 
material involved. A scheme which has been car- 
ried out successfully is to take the material covered 
by the orders and place it in tote boxes. These boxes 
are then kept in a section of tlie storeroom devoted 
to this purpose and their contents are treated as if 
already delivered from the stores, although actually 
still in the storekeeper's possession. Should the 
amount of material set aside in the tote boxes reach 
undue proportions, and should the storekeeper con- 
sider that he is justified in using part of it for cur- 
rent requirements, the amount needed is extracted 
and a ** shortage" ticket is put in the box. The store- 
keeper must, of course, know that he can procure the 
material at short notice to make up the deficit. 

If there are a large number of orders calling for 
deferred delivery, or if it is heavy material which 
cannot be segregated in tote boxes, it is better to 
have a supplementary sheet attached to the perpetual 
inventory, entering on this sheet all items called for 
by the shop order but not taken from the stores. For 
example, suppose the inventory shows 5000 units in 
the stores, but the supplementary memorandum at- 
tached to the inventory sheet or card may show that 



DISTRIBUTING MATERIAL 



417 



4000 are, or will shortly be, needed for shop orders. 
Actually, then, there is only a balance of 1000 avail- 
able for requisitions which may come in at any mo- 
ment. As fast as the material is taken from the stores 
the items on the supplementary sheet must be can- 
celled and transferred to the permanent inventory. 
This scheme is recommended, for the storekeeper has 
a complete record of the quantities actually in the 
stores and the quantities which will be needed for all 
production orders as soon as they are issued. In ad- 
dition, he will know the dates the latter material will 
be called for, and can determine whether he can 
safely use part of this and create an ** apparent" 
shortage. 

Issuing Stores in Sets or Groups. — There are some 
artides which can be issued from the stores without 
the necessity of specifying each item. For instance, 
in a boiler-making establishment there may be a 
dozen or even twenty articles kept in the stores 
which are all standard fittings for a standard boiler. 
A great deal of time and work can be saved by fur- 
nishing the storekeeper with a complete list of the 
standard set. Then when they are needed, all that 
is necessary is to make the requisition for one or 
more sets of the fittings. This saves writing out a 
list of the twenty items. But before the requisition is 
sent to the storeroom it is advisable to send word 
that such a requisition will shortly be presented, so 
that the storekeeper may gather all the items to- 
gether and not keep the runner or messenger waiting 
who goes for the material while it is being brought 
together for issuance. 






418 



PURCHASING AND STORING 



Shop Orders and Stores Requisitions.— To show the 
close relation between shop orders and stores requi- 
sitions the illustration shown in Figure 106, used by 
the Jeffrey Manufacturing Co., is a good example. 
This form is in three sections. The section of inter- 
est to the storekeeper is the bottom one, as it is this 
that forms the stores requisition and upon which the 
material is specified. 

It is impossible to give illustrations or describe 
methods which would fit every condition. Industrial 
establishments are too varied in their nature and 
characteristics. They all use some articles wliich, to 
them, are raw material, although they may have been 
the finished product of some prior manufacturing 
process. As far as the operation of the storeroom is 
concerned, this would not make much difference if the 
articles or materials entering into a product were all 
drawn from the stores at one time. But this is not 
possible in those cases in which a factory is turning 
out a product composed partly of material wliich is 
to undergo prolonged manipulation in the shop and 
partly of articles on which no work is to be done. The 
illustration previously given of boilers is an example 
of this. 

Another instance is in manufacturing pianos, the 
lumber for which might be drawn from stock sev- 
eral weeks or months in advance of the hardware 
and fittings, such as locks, hinges, castors, and so on. 
These articles are really the finished product of some 
other manufacturer, and no additional labor is ex- 
pended on them, but they are nevertheless raw ma- 
terial to the piano manufacturer. In so far as store- 



DISTRIBUTING MATERIAL 



419 



Board No o ^ ».t 

Card No Total Cards S. O. No 

Date DEPT. NO Cat. No. 



The UNIT order calls for the following: 



Dwg. No.. 



Mk. 



Material 

Wanted by 

Scheduled by- 
Deliver to 



.Labor. 



Pattern No 

.Checked in Dept.. 



Rec'd by. 

(Limit on back)_ 



Oerk 



Card No.. 
Date 



Board No.. 



-Total Cards 



S. O. No. 



DEPT. NO. 



Cat. No.. 



Dwg. No.. 



Mk. 



This card INDENTIFIES material or parts attached as the following: 



.Labor. 



Material 

Stock Condition 

Stock to be delivered . 
File date 



Pattern No. 



.in office Checked in Dept.. 
(Moves on back) 



Board No. . 

Order Card No l_ Total Cards. 

Material Card No. 



S. O. No.. 



Total No.' 



Date- 
Store. 



Dwg. No.. 



CaC. No.. 



Mk 



-To DEPT. NO.. 



Delivery Date. 



Amt. 



Description 



Weight 



Price 



FiUed by. 



Value 



Clerk 



FIG. 106. SHOP ORDER AND STORES REQUISITION USED BY 
JEFFREY MANUFACTURING CO. 



420 



PURC^HASINa AND STORING 



keeping is concerned the problem lies in deferring the 
storing of them until the factory requires them. 

In this example, the manufacturing department 
after consultation with the sales department, might 
decide to put an order in the shop to make up one 
hundred pianos, and would put in hand the necessary 
castings and draw from the stores the lumber and all 
material on which labor was to be expended. But it 
would not be necessary at the same time to requi- 
sition for immediate delivery from the storeroom the 
articles which would be used only in assembling the 
finished product. 

In all cases of this character there must be a close 
approximation given to the storekeeper of the date 
on which such finished articles will be required. If 
this is not done a very large stock would otherwise 
be on hand many months in advance of actual re- 
quirements, which would be detrimental to good 
storekeeping. The manufacturing department is the 
sole arbiter in these matters. It has to decide 
whether all the product is to be assembled on com- 
pletion of the work in the shop, or only a portion of 
the quantity being made up. Due advice of this must 
be given the storekeeper to enable him to arrange his 
stores to meet these conditions. Practically all mat- 
ters of this character are taken care of by the plan- 
ning departmnet, and the accurate operation of the 
requirements and orders of that department are re- 
sponsible for this phase of storekeeping. 

Supplies from Stores.— All materials and articles 
drawn from the stores which are in the nature of ex- 
pense items should be requisitioned on a form differ- 



DISTRIBUTING MATERIAL 



421 



ing from the material used in production work. This 
covers all material needed for repairs to buildings or 
equipment, machine repairs and replacements and all 
general shop supplies. 

There should not be any divided authority in con- 
nection with the control of supplies and expense 
items. They should all be under the jurisdiction of 
the general storekeeper and the use of them defined 
on the stores requisition. For instance, requisitions 
for supplies for ** general use" should be avoided. 
The department in which they are to be used should 
be specified and, whenever possible, the purpose for 
which they are required. The closer these lines can 
be drawn the greater will be the saving in this class 
of overhead expense. 

Not only should the control of supplies and ex- 
pense items be vested in the storekeeper, but he 
should have authority to determine the maximum and 
minimum limits. This is a different proposition to 
that of materials for production work and quite a 
different point of view is necessary in forming a 
judgment. The storekeeper is the man best fitted for 
the work, and he can render important service in its 
execution. 

Stores Records. — The compiling of stores records 
has been referred to in Chapter XVIII in the discus- 
sion of inventories. Practically nothing should be 
permitted to disorganize the keeping of the records. 
There must be an advice or document of some kind 
accompanying all entries to the stores, and requisi- 
tions must be obtained for everything leaving the 
storekeeper's charge. If these are properly safe- 



422 



PURCHASING AND STORING 



guarded and duly entered on the inventory, there 
cannot be much wrong with the records. 

One of the greatest difficulties is the institution of 
an infallible system by which material will be ordered 
when the minimum is reached. The inventory may 
be absolutely correct in every particular, but the 
passing of the minimum might not be indicated. 

I have previously explained that the minimum is 
established on the basis of the least quantity that it 
is safe to carry in stores to meet the rate of consump- 
tion, plus the quantity which it is estimated will be 
consumed during the period required to get delivery 
— that is, from the time the storekeeper makes a 
requisition on the purchasing agent until the material 
arrives in the stores. 

It would seem that in posting the entries in the 
perpetual inventory one could not fail to observe the 
approach towards the minimum. But the clerks en- 
gaged on this work do not always keep the records 
right up to date, or they do not balance them often 
enough, or their attention is distracted by other 
duties. This has given rise to tlie evolution of some 
** automatic" form to call attention to the reaching 
of the minimum. 

One method is to have tickets on 4;he bins them- 
selves, which are distinctly marked with tlui mini- 
mum quantity. It is the stockman's duty to note 
when the quantity in the bin is at the low point and 
at once advise the storekeeper. The advice can be 
accomplished by having two tickets, red and white, 
in the holder on the bin. The outside white ticket is 
taken from the holder and is forwarded to the store- 



DISTRIBUTING MATERIAL 



423 



keeper. The red ticket is immediately exposed and 
indicates a condition of danger. 

This scheme might be used in certain cases as an 
aid to the man who is keeping the inventory, but it 
is only permissible in those cases where the stock can 
be easily counted. For instance, if the minimum 
were fixed at 750 articles or units, it is not conceiv- 
able that the stockman can count or weigh these 
every time he thinks the low point is being reached 
to determine whether he must advise the storekeeper. 

Several other forms of bin tickets have been de- 
vised, the object of all being to reduce the work on 
the inventory, or for use as an aid and assistance to 
the clerks engaged on the work. For example, in 
those instances where very frequent withdrawals are 
made from the stores, the bins may be provided with 
tickets on which the stockman makes an entry each 
time he takes articles from the bins. When these 
tickets are filled with entries of deliveries they are 
sent to the storekeeper who posts the total amount 
on the card as one item in his perpetual inventory. 
Such instances, , where bin tickets may be used, how- 
ever, are isolated, and they are more or less make- 
shifts with the object of relieving the work on the 
inventory. Now, this work is of prime importance to 
good storekeeping and it cannot be minimized or 
slurred. The effectiveness of the inventory is surely 

\ going to suffer if attempts are made to substitute 
some other form of recording receipts and deliveries, 
or if it is regarded as a burden to keep up and the 
attempt is made to reduce the burden. 
Every consideration of good storekeeping, good 






424 



PURCHASING AND STORING 



DISTRIBUTING MATERIAL 



425 



buying, and good cost keeping demands a stores in- 
ventory as nearly accurate as it is humanly possible 
to make it. There must be sufficient clerical help to 
make the postings on the inventory regularly and as 
quickly as possible after the delivery requisitions 
reach the inventory desk. With sufficient clerical as- 
sistance there should never be any question of neg- 
lecting to send requisitions to the purchasing agent 
when the minimum is reached. 

A very large establishment employing twelve 
clerks posting entries on the stores inventoi'y cease 
this work every day at four o'clock. The next hour 
is devoted to writing requisitions for all material on 
which the minimum has been reached or which is 
special. This method of procedure could not be 
maintained if requisitions were not posted promptly 
every day, every hour, and almost every minute. 
This is the only way correct inventories can be kept. 
If the requisitions were allowed to accumulate, chaos 
would reign; and at a late hour or even the next day 
a hurried attempt to catch up with the work would 
mean that the observance of the minimum would be 
neglected and requisitions on the purchasing agent 
for new material would be delayed. 

Stores Requisitions on the Purchasing Agent.— -At- 
tention is drawn to Figure 35 on page 230. This 
is the storekeeper's requisition on the purchasing 
agent to buy, and complete information is given at 
the foot of the monthly consumption. The figures for 
each month are taken from the back of the perpetual 
inventory. Figure 94, where the records are kept. 
These requisitions are written up by the clerks who 



post the entries in the inventory. They fill in all the 
particulars noted in the various spaces, sign the 
requisitions and pass them along to the head store- 
keeper. After his signature is affixed, they pass to 
the purchasing agent, being in his hands at the open- 
ing of the office the following morning. Many store- 
keepers make a practice of drawing requisitions once 
a month for a large part of their requirements. This 
may be done with some supplies, but should not be 
followed in the case of articles and materials for use 
in production work; if it is, some of the finer points 
connected with the economics of storing must be 
sacrificed. 



INDEX. 



Acceptance Notice, 138 

— of Goods, 304 
Acceptances, Trade, 137 
Accumulating and Recording Informa- 
tion, 227 
Acknowledgment of Orders, 257 

—Slip, 110 

— Slip, Order with, 258 
Administration and Management, 163 
Agencies and Registers, 201 
Agent, Purchasing (see Puj-chasing) 
Agents, Orders to, 301 
Agreements, Care in Making, 90 

— Reciprocal, 183 
Allowance, Freight, 311 
Arrangement of Prices, 88 

— of Prices, Strategy in, 79 

— of Purchasing Department, 196 
Articles, Intended Use of, 38 
Assistant Purchasing Agent, Functions 

of, 193 
Authority of Purchasing Agent, 168, 
299 
— Price, 75 



Balance Scale, Even, 344 

Bed Frames, Moving of, 353 

Beds, Brass, Counting Parts for, 341 

Belt Conveyor, Overhead, 361 

Bins, Closed, 365 

— Metal, 362 

— Sectional, and Shelving, 362 
Books on Purchasing, 199 
Brass Beds, Counting Parts for, 341 
Business Friendship, 184 
Buyer and Seller, Relations between, 
43 

— and Selling Expense, 45 

— Relation to Finance, 162 
Buyer's Obligation, 149 
Buying, Influence of Charts on, 223 

— Methods, 81 

— Methods, Examples of, 82 
Schedule, 120 



Cancellation of Contract, 303 
Caibon Copies, 305 
Card, Catalogue Index, 211 
— Index for Specifications, 17 
— for Recording Sources of Supply, 

229 
— Form of Perpetual Inventory, 391 
Cash Discounts, 99, 145, 311 
— Discounts, Securing of, 291 
— Net, Definition of, 145 
Catalogue, Index Card. 211 

— System, Universal Standard, 210 
Catalogues, 202 
— Filing of, 209 
■ — Procuring of, 208 
— Standardization of, 206 
Changes in Contracts, 93 
Charges, Crating and Packing, 306 

— Freight, Checking of, 289 
Chart Showing Rise in Steel Prices, 

217 
Charts and Figures, 214 
— Influence of, 223 
— Value of, 216 
Checking Freight Charges, 289 
— of Invoices, 283 
— Prices, 288 
Chemical Test, Report of, 401 
Chief Clerk, 193 

Claims against Transportation Com- 
panies, 309 
Clause on Penalty. 304 
Clerical Work in Storerooms, 337 
Clerk, Follow-up, 195 
— Information, 196 
— Invoice, 195 
— Order, 194 
— Price, 194 
— Requisition. 194 
— Traffic, 195 
Closed Types of Bins, 365 
Coal Specifications, 18 
Combined Rollway. Scales and Chute, 

361 
Commercial Definitions, Standard, 22 

427 



V 



428 



INDEX 



INDEX 



429 



Commodities, Scarcity of, 332 
Competition, Genuine, 49 
Competitive Prices, 77 
Compiling of Records, 177 
Completion of Purchasing Cycle, 134 
Compound Information, 220 
Conditions of Order, 26o 
Confirmatory Telephone Requisition, 

242 
Construction of Open Shelving, 367 

— of Steel Sectional Rack, 370 
Co-operation between Purchasing and 

Production Departments, 118 
Consumption Record, Past, 383 
Containers, Return of, 301 
Contract, Cancellation of, 303 

— Forms, 104 

— Forms, Remedial, 113 

— Time, Delivery Prior to, 307 
Contracts, 90, 251 

— and Orders, 103 

— Changes in, 93 

— Mistakes in, 305 

— not Specifying Quantity, 303 

— Written, 91 
Control, Delivery and Condition be- 
yond, 307 
Conveyor, Overhead Belt, 361 
Conveyors, 358 

— Roller, 359 
Copies, Carbon, 305 
Correct Definitions. 326 
Correlation of Purchasing Divisions, 

11 
Cost of Issuing Orders, 180 

— of Storage, 315 

— Selling, Reduction of, 47 
Costs, Production and Delivery, 119 
Cotton, Prices of. 217 

— Waste, Chart of, 221 
Counting and Weighing Machines, 349 

— Machine in Storeroom, 339 

— Machines, 347 

— Methods. 342 

— of Sheets, 345 

— of Small Parts, 345 

— Parts for Brass Beds, 341 

— Parts in Storeroom, 339 

— Porcelain Knobs, 341 

— Problem of, 338 
Covering Orders for Recording Pur- 
poses. 113 
Crating Charges. 306 
Creating Markets. 53 
Credit for Returned Goods, 309 

— Period, 312 

— Requisition, 406 
Credits, 143 

— Securing of, 292 



Cycle, Purchasine. Completion of, 134 
Cycles of Trade and Prices, 73 

Daily Quotations, 70 

Damages to Articles on Trial, 302 

Date of Delivery, Importance of, 119 

— of Invoices. 313 
Dates of Invoice Payments, 140 
Dating, No Extra, 311 
Debit Invoice, 295 

— Note Memorandum, 294 
Defective Material. Freight on, 309 
Deferred Deliveries, 415 
Definition of Net Cash, 145 

— of Purchasing, 1 

— of Quality, or Grade, 95 

— Sheet, 29, 3o 
Definitions, Correct, 326 

— on Stock-keeper's Record, 36 

— Purpose of, 28 

— Standard, 19 

— Standard Commercial, 22 
Delivery and Conditions beyond Con- 
trol, ^07 

— and Production Costs, 119 

— at Destination, 307 

— Date, Importance of Definite, 119 

— Delivery, Deferred, 415 

— Helps in Gettinsr. 127 

— Place of, 96 

— Point, Non-Specification of, 307 

— Prior to Contract Time, 307 

— Problems. 267. 410 

— Time of. 96 
Demand and Price. 71 
Department. Purchasing, 4 

— Arrangement of, 196 

— Organization Chart of, 192 

— Organization of. 190 

— Origin and Mission of, 173 

— Outline of Work for, 189 

— Relation to Business, 175 

— Relation to Sellers, 178 
Departmental Losses. 51 

— Meetings. 176 
Departments, Financial and Stores, 334 
Descriptions, Improper, 24 
Destination, Delivery at, 307 
Diagram of Divisions of Purchasing, 9 
Dies and Patterns, 298 

Dimensions, Standard, Tabulation of, 

32 
Discounts, Cash. 99, 154, 311 
— Securing of, 293 

Disposition of Incoming Documents. 
226 

Distinction between Offer and Bid, 92 
Divisions, Purchasing, 9, lo, H 
— Correlating, 11 



Documents, Disposition of Incoming, 
226 

Economics of Purchasing, 2 
Elevating Truck, Scale, 355 
Emergency Orders, 126 
Employees, Experience Necessary for, 

181 
Equipment and Manual Operations, 

336 
— Specifications. 17 
Estimating, Weighing and, 343 
Ethical Standards. Purchasing, 182 
Even Balance Scale. 344 
Examples of Buying Methods, 82 
Executive Pressure. 184 
Experience for Employees, Importance 

of. 181 
Exports and Prices, 74 
Extra Dating, No, 311 
Extremes of Storage Problem, 323 

Factors, Storage, 324 

— which Reduce Values, 317 
False Statements, 305 
Field of the Purchasing Agent, 171 
Figure 1, Diagram of Divisions of Pur- ^ 
chasing, 9 
— 2, Index Card for Specifications, 

17 
— 3, Standard Descriptions and Defi- 
nitions, 19 
—A, Standard Descriptions and Defi- 
nitions, 19 
— 5, Standard Descriptions and Defi- 
nitions, 19 
— 6, Standard Descriptions and Defi- 
nitions, 19 
— 7, Standard Method of Indicating 

Part Number, 27 
— 8, Definition Sheet, 29, 30 
— 9, Definition Sheet, 31 
— 10, Tabulation of Standard Di- 
mensions, 32 
— 11, Purchase Order Record, 35 
— 12, Definitions on Stock-keepers 

Record, 36 
— 13, Record of Sources of Supply, 

59 
— 14, Form for Recording Prices, 

69 
— 15 Form of Contract, 106 
— 16, Order Form, 109 
— 17, Order Form, with Acknowl- 
edgment Slip, 110 
— 18, Record of Time Required for 

Shipment, 121 
— 19, Form for Reporting Prog- 
ress of Orders, 125 



— 20, Inspector's Report Form, 126 
— 21, Acceptance Notice, 138 
— 22, Price Record, 148 
— 23, Standard Price List, 150 
— 24, Standard Price List, 151 
— 25, Standard Price List, 152 
— 26, Standard Price List, 153 
— 27, Record of Salesmen, 179 
— 28, Organization Chart of Pur- 
chasing Department, 192 
— 29, Cataloigue Index Card, 211 
— 30, Catalogue Index Card, 211 
— 31, Chart Showing Rise in Steel 

Prices, 217 
— 32, Spot and Option Prices of Cot- 
ton, 217 
— 33, Three Curve Chart, 221 
— 34, Cards for Recording Sources 

of Supply, 229 
— 35, Requisition Form, 230 
— 36, Material Consumed Record, 

231 
— 37, Price Record. 232 
— 38, Requisition for Material, 240 
— 40, Requisition Form, 241 
—41, Confirmatory Telephone Requi- 
sition, 242 
— 42, Request for Quotation, 245 
— 43, Request for Quotation, 246 
— 44, Form for Tabulating Quota- 
tions, 247 
— 45, Contract for Purchases 
— 46, Record of Shipments, 255 
—47, Order Form with Acknowledg- 
ment, 258 
—48, Order Form with Conditions, 

260 
— 49, Order Form, 261 
— 50, Instruction Sheet, 263 
— 51, Request for Price on Order, 

265 
— 52, Purchase Order Record, 266 
— 53, Reverse of Order Sheet, 271 
— ^54, Form Used for Following Up 

Orders, 274 
— 55, Form Letter for Following up 

Shipments, 275 
— 56, Progress Report, 276 
— 57, Form for Recording Invoices, 

282 
— 58, Cash Discount Notice, 
— 59, Record of Receipt of Material, 

286 
— 60, Record of Receipt of Material, 

287 
— 62, Form for Approving Invoices, 

259 
— 63, Debit Note Memorandum, 294 



430 



INDEX 



INDEX 



431 



— 64, Debit-Invoice, 295 

— 65, Counting Parts in Storeroom, 

339 
— 66, Machine Counting in Store- 
room, 339 
— 67, Counting Porcelain Knobs. 

341 
— 68, Counting Parts for Brass 

Beds. 341 
— 69, Counting of Small Parts, 345 
— 70, Counting of Sheets, 345 
— 71, Counting and Weighing Ma- 
chines, 349 
— 72, Counting and Weighing Ma- 
chines, 349 
— 73, Counting and Weighing Ma- 
chines, 349 
— 74, Moving Bed Frames, 353 
— 75, Stacking Finished Lumber, 

355 
— 76, Scale Elevating Truck, 355 
— 77, Roller Conveyors, 359 
— 78, Roller Conveyors, 359 
— 79, Combined Rollway. Scales and 

Chute, 361 
— 80, Overhead Belt Conveyor, 361 
— 81, Metal Bins, 363 
— 82, Metal Bins, 363 
— 83, Closed Types of Bins, 365 
— 84, Construction of Open Shelv- 
ing, 367 

— 85, Construction of Open Shelv- 
ing, 367 
— 86, Steel Sectional Rack Construc- 
tion, 370 
— 87, Stock Racks, 370 
— 88, Wall Stock Rack, 371 
— 89, Tire Rack, 371 
— 90, Revolving Rack, 371 
— 91, Perpetual Inventory Form, 378 
— 92, Perpetual Inventory Form, 380 
— 93, Perpetual Inventory Form, 381 
— 94, Past Consumption Record, 383 
— 95, Perpetual Inventory Form, 385 
— 96, Inventory Sheet, 389 
— 97, Card Form of Perpetual In- 
ventory, 391 
— 98, Record of Receipt of Ma- 
terials, 397 

— 99, Record of Receipt of Ma- 
terials, 398 
— 100, Report of Chemical Test, 401 
— 101, Credit Requisition, 406 
— 102, Report of Receipt of Scrap 
Material, 408 

— 103, Material Requisition, 413 "^ 
— 104, Stock Order, 414 
— 105, Shortage Form, 415 



— 106. Shop Order and Stores Requi- 
sition, 419 
Figures and Charts, 214 
Financial Department, 334 
Finance, Relation of Buyer to. 162 
Filing of Catalogues, 209 
Finished Material, 402 
FoUow-up Clerk, 195 

— Orders, 267 

— Work, 123 
Fonn for Following up Orders. 274 

— for Recording Invoices, 282 

— for Recording Prices, 69 

— for Reporting Progress of Orderg. 
125 

— for Tabulating Quotations. 247 

— ^Letter for Following up Ship- 
ments, 275 

— of Contract, 106 

— of Requisitions, 411 

— of Wealth, 314 

— Order, 109 

— Order, with Acknowledgment Slip. 
110 

— Contract, 104, 106 
Forms, Contract, Remedial, 113 
Freight Allowance, 311 

— Charges, Checking of, 289 

— on Defective Material, 309 
Friendship in Business, 184 
Functions of Assistant Purchasinf 
Agent, 193 

— of Purchasing Agent, 191 

Goods, Acceptance of, 304 
— Receipt for, 310 
— Received, Record of, 396 
— Returned, Credit for, 300 

Grade, Definition of, 95 

Guaranties, Price, 86 

Helps in Getting Deliveries, 127 

Ideal Inventorying, 384 

Identifying Material, 404 

Incommg Documents, Disposition of, 

226 
Influence of Charts on Buying. 223 
Information, Accumulating and Record- 
ing of, 227 

— Clerk. 196 

— Compound, 220 
Importance of Delivery Date, 119 
Improper Descriptions, 24 
Index Card, Catalogue, 211 

— for Specifications, 17 
Inspecting Material, 310 

— Methods, 399 
Inspection, 128 



— ^Before Shipment, 128 
— Value of, 398 
Inspector's Report Form, 126 
Instruction Sheet, 263 
Intended Use of Articles, 38 
Intensive Storing, 373 
Inventory Form, Perpetual, 378, 380, 
381, 385, 391 

— Perpetual, 377 

— Physical, 383 

— Posting Values on Stores, 388 

— Price, 327 

— Sheet, 389 
Inventorying, Ideal, 384 
Invoice Clerk, 195 

— ^Debit, 295 

— ^Payments, 141 

— Payments, Dates for, 140 

— Record, 282 
Invoices, 147, 278 

— and Cash Discounts, 154 

— Checking of, 283 

— ^Date of, 313 

— ^Lost, 312 

— Method of Recording, 280 

— Relation to Purchasing, 137 

— Standardization of, 136 

— ^Terms on, 311 

— ^Work to be done on, 135 
Is«aance of Orders, Cost of, 18o 
Issuing Stores in Sets or Groups, 417 

Jobbers, 56 

Knowledge of Prices, 68 

Leeway in Manufacturing Quantities, 

301 
Letter, Form., on Shipments, 275 
Liability of Railroad Company, 309 
Limits, Storage, 329 
List, Price. Standard, 150, 151, 152, 

153 
Lists, Price, 300 
Locating' of Materials. 404 

— the Storeroom. 337 
Losses, Departmental, 51 

— through Incorrect Definitions, 50 
Lost Invoices. 3ria 
Lumber, Stacking of Finished, 355 

Machine. Counting in Storeroom, 339 
Machines, Counting, 347 

— Counting and Weighing, 349 
Maintenance of Prices, 87 

—of Stock. 330 
Management and Administration, lo» 
Manipulated Prices, 76 



Manufacturing Quantities, Leeway in, 

301 
Manual Operations and Equipment, 

336 
Market, The. 52 
— Value. 327 
Markets, Creating, 53 
Material Consumed. Record of, 231 
— Finished. 402 
— Inspecting, 310 
— Received into Stores, 402 
— Receiving. 394 
— Record of Recepit of. 286 
— Requisition. 240. 413 
— Returned to Stores, 405 
— Specifications, 15 
— Storage of, 403 
— Truckine. 3.';2 
Materials, Locatine and Identifying, 
404 
— Record of Receipt of, 397 
Maximum and Minimum Storage Lim- 
its, 329 
Meetings, Departmental, 176 
Memorandum. Debit, 294 
Metal Bins. 362 
Methods, Buying. 81, 82 
— Counting. 342 
— Inspecting, 399 
— of Testing, Need of Recognized, 

129 
— ^Purchasing, 3 
— ^Weiehinsr. 350 
Mistakes in Contracts. 305 
Moving of Bed Frames in Storeroom, 
353 

Negotiations. Preliminary, 92 
Net Cost, Meaning of, 145 
Non-Specification of Delivery Point, 

307 
Notice of Acceptance, 138 

ObUgatlon of Buyer, 149 

— of Transportation Companies, 308 
Offer and Bid. Distinction between, 92 
Offers by Telegraph. 305 
Open-Air Storage, 372 
Open-Shelving, 366 
Operations, Manual, 336 
Order Clerk. 194 

— Form, 109, 261 

— Form, Terms on, 310 

Form with Acknowledgment Slip, 

110, 258 

— Form with Conditions, 260 

— Record, Purchase, 35, 266 

— Request for Price on, 265 

— Sheet, Reverse of, 271 



432 



INDEX 



INDEX 



433 



— Stock, 414 
Orders, 256 

— Acknowledgment of, 257 

— and Contracts, 103 

— Cost of Issuing, 180 

— Covering, for Recording Purposes. 

113 
— Emergency. 126 
— Follow-up, 267 
— Following up of, 274 
— Form for Reporting Progress of, 

125 
— Pick-up, 111 
— Purchase, Record of, 264 
— Regular, 107 
— Rush, 108 

— Shop, and Stores Requisitions, 
418. 419 

— to Agents, 300 

— Verbal. 91 

— Without Prices, 303 

— Writing Up of, 259 
Organization Chart of Purchasing De- 
partment. 192 

— of Purchasing Department, 190 
Overhead Belt Conveyor, 361 
Over-Systematization, 55 
Ownership Transfer, 121 

Packing Charges, 306 
P*rt Number Standard Method of In- 
dicating, 27 

— Payment, Settlement by, 312 

— Shipments, 306 
Parts, Counting Brass Bed, 341 

— Counting of Small, 345 
Past Consumption Record, 383 
Patterns and Dies, 298 
Payment, Part, Settlement by, 312 

— Terms of, 311 

— Time of, 312 
Payments, 313 

— Invoice, 140 
Penalty Clause, 304 
Performance, Price Based on, 85 
Period, Credit, 312 

— Trial, 302 
Periodic Inventories, Perpetual versus, 

376 
Perpetual Inventory, 377 

— Inventory Forms, 378, 380, 381, 
385, 391 

— versus Periodic Inventories, 376 
Physical Inventory, 383 

— Test, Report of, 401 
Pick-up Orders, 111 
Place of Delivery, 96 
Planning and Locating the Storeroom, 
337 



Policy of Purchasing Agent. 167 
Porcelain Knobs, Counting of, 341 
Posting Values on Stores Inventory, 

:i88 
Practical Experience for Employees, 

181 
Preliminary Negotiations, 92 
Pressure, Executive, 184 
Price and Demand, 71 

— Authority, 75 

— ^Based on Performance, 85 

— Clerk, 194 

— Guarantees, 86 

— Inventory, 327 

— Knowledge, 68 

— Maintenance, 87 

— Record, 148, 232 

— ^List, Standard, 150, 151, 152, 153 

— ^Lists, 300 

— versus Value, 64 
Prices and Exports, 74 

— Arrangement of, 88 

— Chart of Steel, 217 

— Checking of, 288 

— Competitive, 77 

— Manipulated, 76 

— Orders Without, 303 

— Recording of, 69 

— Spot and Option, on Cotton, 217 

— Resale 84 

— Strategy in Arranging, 79 

— Trade, 73 
Pricing Requisitions, 244 
Problems, Counting, 338 
, — Delivery, 267, 410 

— Stores, 318 

— Transportation, 131 
Procurins of Catalogues, 208 
Production and Delivery Costs, 119 

— Storage Space and, 328 
Profits in Storage, 320 
Progress Report, 276 
Prompt Shipment, 308 
Proportional Scales, 346 
Psychological Factors in Storage, 324 
Psychology in Purchasing, 1^4 
Purchase Order Record, 35, 261, 364 

— Terms of, 98 

Purchasing Agent, Assistant. Functions 
of, 193 

— Authority of, 168, 299 

— Field of the, 171 

— Functions of, 191 

— Policy of, 167 

— Qualifications of, 157 

— Responsibility of, 157 

— Stores Requisitions on, 425 
Purchasing, Books on, 199 

— Cycle, Completion of, 134 



— ^Definition of, 1 

— ^Divisions, Corelation of, 11 

— ^Divisions of, 8, 9 

— ^Economics of, 2 

— Ethical Standards of, 182 

— Methods, 3 

— Psychology in, 164 

— Relation of Invoices to, 137 

— Science of, 2 
Purchasing Department, 4 

— Arrangement of, 196 

— Organization Chart, 192 

— Organization of, 190 

— Origin and Mission of, 173 

— Outline of Work, 189 

— Relation of, 175 

— Relation to Sellers, 178 
Purpose of Definitions, 28 

Qualifications of Purchasing Agent. 

157 
Quality, 301 

— Definition of, 95 
Quantities, Leeway in Manufacturing, 

301 
Quantity Purchased, 41 
Quotation, Request for, 245, 246 
Quotations, Daily, 70 

— Form for Tabulating, 247 

Rack Construction, Steel Sectional, 
370 
— Revolving, 371 
— Tire Storage, 371 
— Wall Stock, 371 
Backs, 368 

— Stock, 370 
Railroads, Liability of, 309 
Recapitulation, 63 
Receipt for Goods, 310 

— of Material, Record of, 286, 397, 
399 
Received Goods, Record of, 396 
Receiving Material at Factory, 394 

— Material into Stores, 402 
Reciprocal Agreements, 183 
Record of Invoices, 282 

— of Material Consumed, 231 

— of Past Consumption, 383 

— of Purchase Orders, 264, 266 

— of Receipt of Material, 286, 397, 

399 
— of Salesmen, 179 
— of Shipments, 255 
— of Sources of Supply, 229 
— of Stores, 421 

of Time Required for Shipment, 

121 
—Price, 148, 232 



— ^Purchase Order, 35 

— Stockkeeper's, Definitions on, 36 
Recording of Information, 227 

— of Invoices, 280 
Records, Compiling, 177 

— of Goods Received, 396 

— of Sources of Supply, 58, 59 
Reducing Selling Costs, 47, 164 
Registers and Agencies, 201 
Regular Orders, 107 
Request for Price on Order Issued, 265 

— for Quotation, 245, 246 
Relation of Invoices to Purchasing, 
137 

— of Purchasing Dept. to Business, 

175 

— of Purchasing Department to 
Sellers, 178 
Relations between Buyer and Seller, 

43 
Remedial Contract Forms, 113 
Report Form, Inspectors, 126 

— of Chemical or Physical Test on 

Materials, 401 
— of Receipt of Scrap Material, 408 
— on Progress, 276 
Requisition Clerk, 194 
— Confirmatory, 242 
— Credit, 406 
—Form, 230, 241, 411 
— Material, 240, 413 
— Routing the, 243 
— Stores, on Purchasing Agent, 425 
— Rush, 235 
— Samples of, 238 
— Stores, and Shop Orders, 418, 419 
Requisitions, 233 

— Pricing of, 244 
Resale Prices, §4 

Responsibility of Purchasing Agent, 
157 
— of Salesmen, 299 
Return of Containers, 301 
Returned Goods, Credit for, 309 

— Material, 405 
Reverse of Order Sheet, 271 
Revolving Rack, 371 
Roller Conveyors, 359 
Rollway, Scales and Chutes, Combin»- 

tion of, 361 
Routing the Requisition, 243 
Rush Orders, 108 
— Requisitions, 235 

Safe and Sane Storage, 321 
Salesmanship, Reducing Cost of, 164 
Salesmen, Record of, 179 

— Responsibility of, 299 
Samples, 40 



i 



i 



434 



INDEX 



— of Requisitions, 238 

— Testing of, 129 
Scale Elevating Truck, 355 

— Even Balance, 344 
Scales, Proportional, 346 
Scarcity of Commodities, 332 
Schedule, Buying on, 120 
Science of Purchasing, 2 
Scrap, 406 

—Material, Report of Rceeipt of, 
408 
Sectional Rack Construction, 370 

— Steel Bins and Shelving, 362 
Securing Cash Discounts, 291 

— Credits, 292 
Sellers, Segregation of, 48 
SeUing Costs, Reducing, 4 

— Expense and the Buyer, 45 
Settlement by Part Payment, 312 
Sets, Issuance of Stores in, 417 
Sheet, Instruction, 263 

— Inventory, 389 
Sheets, Counting of, 345 
Shelving, Open, 366 

— Construction of, 367 
Shipment, Inspection Prior to, 128 

— Record of Time Required for, 121 
Shipments, Following Up, 275 

— Part, 306 

— Prompt, 308 

— Record of, 255 

Shop Orders and Stores Requisitions. 

418, 419 
Shortage Form, 415 
Shortages, 412 

Six Divisions of Purchasing, 8 
Small Parts, Counting of, 345 
Solvency of Vendors, 301 
Sources of Supply. 57 
Space, Storage, 328 
Specifications and Definitions, 14 
Specifications, Coal, 18 

— Equipment, 17 

— Index Card for, 17 

— Material, 15 
Spot and Option Prices of Cotton, 217 
Stacking of Finished Lumber, 355 
Standard Descriptions and Definitions, 
19, 20, 21, 22, 23, 24, 25 

— Dimensions, Tabulation of, 32 

— Method of Indicating Part Num- 
ber, 27 

—Price List, 150, 151, 152, 153 
Standardization of Catalogues, 206 

— of Supplies, 174, 324 
Standardizing Invoicing, 136 
Standards, Ethical Purchasing, 182- 
Statements, False, 305 
Stationery Stores, 407 



Steel Bins and Shelving, Sectional, 
362 

— Sectional Rack Construction, 370 
Stockkeeper's Record, Definitions on, 

36 
Stock Maintenance, 330 

— Order, 414 

— Rack, Wall, 371 

— Racks, 370 
Storage, Cost of, 315 

— Limits, Maximum and Minimum. 
329 

— Open Air, 372 

— Problem, Extremes of th», 323 

— Profits in, 320 

— Rack, Tire, 371 

— Safe and Sane, 321 

— Spate and Production, JJ28 
Storeroom. Clerical Work in, 337 

— Counting by Machinery in, 339 

— ^Counting Parts in, 339 

— Location of the, 337 

— Moving Bed Frames in, 353 
Stores Department, 334 

— Issuance of, 417 

— Problem, 318 

— Receiving Material into. 402 

— ^Record, 421 

— Requisitions on Purchasing Agent. 
425 

— Stationery, 407 

— Sup))lies from, 420 
Storing, Intensive, 373 

— Material, 403 
Stategy in Arranging Prices, 79 
Supplies from Stores, 420 

— Standardization of, 174. 324 
Supply Record of Sources of, 58, 59, 
229 

— Sources of, 57 
System, Standard Catalogue, 210 

Telegraph Offers, 305 
Terms of Payment, 311 

— of Purchase, 98 

— on Invoices, 311 

— on order Form, 310 
Test Report, Chemical or Physical, 

401 
Testing Methods, Need of Recognized, 
129 

— of Samples, 129 
Three Curve Chart of Cotton Waste, 
Time, Delivery Prior to Contract, 307 

— of Delivery, 96 

— of Payment, 312 

— Required for Shipment, 121 
Tire Storage Rack, 371 
Trade Acceptance, 137 



INDEX 



435 



— Cycles and Prices, 73 
Traffic Clerk, 195 

— Work, 122 
Transfer of Ownership, 121 
Transportation Companies, Claims 
Against, 309 

— Obligation, 308 

— Problems, 131 
Trial Period, 302 
Truck, Elevating, 355 
Trucking Material, 352 

Universal Standard Catalogue System. 

210 
Use of Articles, Intended, 38 

Value, Market, 327 



Value of Charts to Buyer, 216 

— of Inspection, 398 

— versus Price, 64 
Values, Factors which Reduce, 317 

on Stores Inventory, Posting of, 

388 
Variations in Routine Work, 264 
Vendors, Solvency of, 301 
Verhal Orders, 91 

Wall Stock Rack, 371 
Waste, Cotton, 221 
Wealth, Forms of, 314 
Weighing and Estimating, 343 

— Machines, 349 

— Methods, 350 
Writing Up Orders, 259 
Written Contracts, 91 



1 



! 



Date Due 




SIP 2 9 



Nov18'52 



r«b5 54 



195.0 ,0 



'-h 






NEH 



X)0-S\ 



T9'i'3 



fOR 




COLUMBIA 




0041426215